G.R. No.
167346 April 2, 2007 …For failure to comply with its obligation, [petitioner] is presumed to have been at fault or to have acted negligently
SOLIDBANK CORPORATION/ METROPOLITAN BANK AND TRUST COMPANY,* Petitioner,
vs.
SPOUSES PETER and SUSAN TAN, Respondents.
Assailed in this petition for review by certiorari under Rule 45 of the Rules of Court are the decision1 and resolution2 of
the Court of Appeals (CA) dated November 26, 2004 and March 1, 2005, respectively, in CA-G.R. CV No.
58618,3 affirming the decision of the Regional Trial Court (RTC) of Manila, Branch 31. 4
On December 2, 1991, respondents’ representative, Remigia Frias, deposited with petitioner ten checks worth
₱455,962. Grace Neri, petitioner’s teller no. 8 in its Juan Luna, Manila Branch, received two deposit slips for the checks,
an original and a duplicate. Neri verified the checks and their amounts in the deposit slips then returned the duplicate
copy to Frias and kept the original copy for petitioner.
In accordance with the usual practice between petitioner and respondents, the latter’s passbook was left with petitioner
for the recording of the deposits on the bank’s ledger. Later, respondents retrieved the passbook and discovered that
one of the checks, Metropolitan Bank and Trust Company (Metrobank) check no. 403954, payable to cash in the sum
of ₱250,000 was not posted therein.
Immediately, respondents notified petitioner of the problem. Petitioner showed respondent Peter Tan a duplicate
copy of a deposit slip indicating the list of checks deposited by Frias. But it did not include the missing check. The
deposit slip bore the stamp mark "teller no. 7" instead of "teller no. 8" who previously received the checks.
Still later, respondent Peter Tan learned from Metrobank (where he maintained an account) that Metrobank check no.
403954 had cleared after it was inexplicably deposited by a certain Dolores Lagsac in Premier Bank in San Pedro,
Laguna. Respondents demanded that petitioner pay the amount of the check but it refused, hence, they filed a case
for collection of a sum of money in the RTC of Manila, Branch 31.
In its answer, petitioner averred that the deposit slips Frias used when she deposited the checks were spurious.
Petitioner accused respondents of engaging in a scheme to illegally exact money from it. It added that, contrary to the
claim of respondents, it was "teller no. 7" who received the deposit slips and, although respondents insisted that Frias
deposited ten checks, only nine checks were actually received by said teller. By way of counterclaim, it sought payment
of ₱1,000,000 as actual and moral damages and ₱500,000 as exemplary damages.
After trial, the RTC found petitioner liable to respondents:
Upon examination of the oral, as well as of the documentary evidence which the parties presented at the trial in
support of their respective contentions, and after taking into consideration all the circumstances of the case, this
Court believes that the loss of Metrobank Check No. 403954 in the sum of ₱250,000.00 was due to the fault of
[petitioner]…[It] retained the original copy of the [deposit slip marked by "Teller No. 7"]. There is a presumption in
law that evidence willfully suppressed would be adverse if produced.
Art. 1173 of the Civil Code states that "the fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the circumstances of the person of the time
and of the place"; and that "if the law or contract does not state the diligence which is to be observed in the
performance, the same as expected of a good father of a family shall be required."
1
unless they prove that they observe extraordinary diligence as prescribed in Arts. 1733 and 1735 of the Civil Code
(Art. 1756)…
WHEREFORE, premises considered, judgment is hereby rendered in favor of [respondents], ordering [petitioner] to
pay the sum of ₱250,000, with legal interest from the time the complaint [for collection of a sum of money] was filed
until satisfied; ₱25,000.00 moral damages; ₱25,000.00 exemplary damages plus 20% of the amount due
[respondents] as and for attorney’s fees. With costs.
Petitioner appealed to the CA which affirmed in toto the RTC’s assailed decision:
Serious doubt [was] engendered by the fact that [petitioner] did not present the original of the deposit slip marked
with "Teller No. 7" and on which the entry as to Metrobank Check No. 403954 did not appear. Even the most cursory
look at the handwriting thereon reveal[ed] a very marked difference with that in the other deposit slips filled up [by
Frias] on December 2, 1991. Said circumstances spawn[ed] the belief thus, the said deposit slip was prepared by
[petitioner] itself to cover up for the lost check.6
Petitioner filed a motion for reconsideration but the CA dismissed it. Hence, this appeal.1a\^/phi1.net
Before us, petitioner faults the CA for upholding the RTC decision. Petitioner argues that: (1) the findings of the RTC
and the CA were not supported by the evidence and records of the case; (2) the award of damages in favor of
respondents was unwarranted and (3) the application by the RTC, as affirmed by the CA, of the provisions of the Civil
Code on common carriers to the instant case was erroneous. 7
The petition must fail.
On the first issue, petitioner contends that the lower courts erred in finding it negligent for the loss of the subject
check. According to petitioner, the fact that the check was deposited in Premier Bank affirmed its claim that it did not
receive the check.
At the outset, the Court stresses that it accords respect to the factual findings of the trial court and, unless it overlooked
substantial matters that would alter the outcome of the case, this Court will not disturb such findings.8 We meticulously
reviewed the records of the case and found no reason to deviate from the rule. Moreover, since the CA affirmed these
findings on appeal, they are final and conclusive on us.9 We therefore sustain the RTC’s and CA’s findings that petitioner
was indeed negligent and responsible for respondents’ lost check.
On the issue of damages, petitioner argues that the moral and exemplary damages awarded by the lower courts had
no legal basis. For the award of moral damages to stand, petitioner avers that respondents should have proven the
existence of bad faith by clear and convincing evidence. According to petitioner, simple negligence cannot be a basis
for its award. It insists that the award of exemplary damages is justified only when the act complained of was done in
a wanton, fraudulent and oppressive manner.10
We disagree.
While petitioner may argue that simple negligence does not warrant the award of moral damages, it nonetheless cannot
insist that that was all it was guilty of. It refused to produce the original copy of the deposit slip which could have
proven its claim that it did not receive respondents’ missing check. Thus, in suppressing the best evidence that could
have bolstered its claim and confirmed its innocence, the presumption now arises that it withheld the same for
fraudulent purposes.11
Moreover, in presenting a false deposit slip in its attempt to feign innocence, petitioner’s bad faith was apparent and
unmistakable. Bad faith imports a dishonest purpose or some moral obliquity or conscious doing of a wrong that
partakes of the nature of fraud.12
As to the award of exemplary damages, the law allows it by way of example for the public good. The business of
banking is impressed with public interest and great reliance is made on the bank’s sworn profession of diligence and
meticulousness in giving irreproachable service. 13 For petitioner’s failure to carry out its responsibility and to account
for respondents’ lost check, we hold that the lower courts did not err in awarding exemplary damages to the latter.
On the last issue, we hold that the trial court did not commit any error.1awphi1.nét A cursory reading of its decision
reveals that it anchored its conclusion that petitioner was negligent on Article 1173 of the Civil Code. 14
In citing the different provisions of the Civil Code on common carriers, 15 the trial court merely made reference to the
kind of diligence that petitioner should have performed under the circumstances. In other words, like a common carrier
whose business is also imbued with public interest, petitioner should have exercised extraordinary diligence to negate
its liability to respondents.
Assuming arguendo that the trial court indeed used the provisions on common carriers to pin down liability on
petitioner, still we see no reason to strike down the RTC and CA rulings on this ground alone.
In one case,16 the Court did not hesitate to apply the doctrine of last clear chance (commonly used in transportation
laws involving common carriers) to a banking transaction where it adjudged the bank responsible for the encashment
of a forged check. There, we enunciated that the degree of diligence required of banks is more than that of a good
father of a family in keeping with their responsibility to exercise the necessary care and prudence in handling their
clients’ money.
We find no compelling reason to disallow the application of the provisions on common carriers to this case if only to
emphasize the fact that banking institutions (like petitioner) have the duty to exercise the highest degree of diligence
when transacting with the public. By the nature of their business, they are required to observe the highest standards
of integrity and performance, and utmost assiduousness as well. 17
WHEREFORE, the assailed decision and resolution of the Court of Appeals dated November 26, 2004 and March 1,
2005, respectively, in CA-G.R. CV No. 58618 are hereby AFFIRMED. Accordingly, the petition is DENIED.
2
G.R. No. 193723 July 20, 2011
GENERAL MILLING CORPORATION, Petitioner,
vs.
SPS. LIBRADO RAMOS and REMEDIOS RAMOS, Respondents.
This is a petition for review of the April 15, 2010 Decision of the Court of Appeals (CA) in CA-G.R. CR-H.C. No. 85400
entitled Spouses Librado Ramos & Remedios Ramos v. General Milling Corporation, et al., which affirmed the May 31,
2005 Decision of the Regional Trial Court (RTC), Branch 12 in Lipa City, in Civil Case No. 00-0129 for Annulment and/or
Declaration of Nullity of Extrajudicial Foreclosure Sale with Damages.
The Facts
On August 24, 1989, General Milling Corporation (GMC) entered into a Growers Contract with spouses Librado and
Remedios Ramos (Spouses Ramos). Under the contract, GMC was to supply broiler chickens for the spouses to raise
on their land in Barangay Banaybanay, Lipa City, Batangas. 1 To guarantee full compliance, the Growers Contract was
accompanied by a Deed of Real Estate Mortgage over a piece of real property upon which their conjugal home was
built. The spouses further agreed to put up a surety bond at the rate of PhP 20,000 per 1,000 chicks delivered by GMC.
The Deed of Real Estate Mortgage extended to Spouses Ramos a maximum credit line of PhP 215,000 payable within
an indefinite period with an interest of twelve percent (12%) per annum.2
The Deed of Real Estate Mortgage contained the following provision:
WHEREAS, the MORTGAGOR/S has/have agreed to guarantee and secure the full and faithful compliance of
[MORTGAGORS’] obligation/s with the MORTGAGEE by a First Real Estate Mortgage in favor of the MORTGAGEE, over
a 1 parcel of land and the improvements existing thereon, situated in the Barrio/s of Banaybanay, Municipality of Lipa
City, Province of Batangas, Philippines, his/her/their title/s thereto being evidenced by Transfer Certificate/s No./s
T-9214 of the Registry of Deeds for the Province of Batangas in the amount of TWO HUNDRED FIFTEEN THOUSAND
(P 215,000.00), Philippine Currency, which the maximum credit line payable within a x x x day term and to secure
the payment of the same plus interest of twelve percent (12%) per annum.
Spouses Ramos eventually were unable to settle their account with GMC. They alleged that they suffered business
losses because of the negligence of GMC and its violation of the Growers Contract. 3
On March 31, 1997, the counsel for GMC notified Spouses Ramos that GMC would institute foreclosure proceedings on
their mortgaged property.4
On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of Mortgage. On June 10, 1997, the property subject
of the foreclosure was subsequently sold by public auction to GMC after the required posting and publication. 5 It was
foreclosed for PhP 935,882,075, an amount representing the losses on chicks and feeds exclusive of interest at 12%
per annum and attorney’s fees.6 To complicate matters, on October 27, 1997, GMC informed the spouses that its
Agribusiness Division had closed its business and poultry operations. 7
On March 3, 2000, Spouses Ramos filed a Complaint for Annulment and/or Declaration of Nullity of the Extrajudicial
Foreclosure Sale with Damages. They contended that the extrajudicial foreclosure sale on June 10, 1997 was null and
void, since there was no compliance with the requirements of posting and publication of notices under Act No. 3135,
as amended, or An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate
Mortgages. They likewise claimed that there was no sheriff’s affidavit to prove compliance with the requirements on
posting and publication of notices. It was further alleged that the Deed of Real Estate Mortgage had no fixed term. A
prayer for moral and exemplary damages and attorney’s fees was also included in the complaint.8 Librado Ramos
alleged that, when the property was foreclosed, GMC did not notify him at all of the foreclosure.9
During the trial, the parties agreed to limit the issues to the following: (1) the validity of the Deed of Real Estate
Mortgage; (2) the validity of the extrajudicial foreclosure; and (3) the party liable for damages. 10
In its Answer, GMC argued that it repeatedly reminded Spouses Ramos of their liabilities under the Growers Contract.
It argued that it was compelled to foreclose the mortgage because of Spouses Ramos’ failure to pay their obligation.
GMC insisted that it had observed all the requirements of posting and publication of notices under Act No. 3135. 11
The Ruling of the Trial Court
Holding in favor of Spouses Ramos, the trial court ruled that the Deed of Real Estate Mortgage was valid even if its
term was not fixed. Since the duration of the term was made to depend exclusively upon the will of the debtors-
spouses, the trial court cited jurisprudence and said that "the obligation is not due and payable until an action is
commenced by the mortgagee against the mortgagor for the purpose of having the court fix the date on and after
which the instrument is payable and the date of maturity is fixed in pursuance thereto."12
The trial court held that the action of GMC in moving for the foreclosure of the spouses’ properties was premature,
because the latter’s obligation under their contract was not yet due.
The trial court awarded attorney’s fees because of the premature action taken by GMC in filing extrajudicial foreclosure
proceedings before the obligation of the spouses became due.
The RTC ruled, thus:
WHEREFORE, premises considered, judgment is rendered as follows:
1. The Extra-Judicial Foreclosure Proceedings under docket no. 0107-97 is hereby declared null and void;
2. The Deed of Real Estate Mortgage is hereby declared valid and legal for all intents and puposes;
3. Defendant-corporation General Milling Corporation is ordered to pay Spouses Librado and Remedios Ramos
attorney’s fees in the total amount of P 57,000.00 representing acceptance fee of P30,000.00 and P3,000.00
appearance fee for nine (9) trial dates or a total appearance fee of P 27,000.00;
4. The claims for moral and exemplary damages are denied for lack of merit.
The Ruling of the Appellate Court
On appeal, GMC argued that the trial court erred in: (1) declaring the extrajudicial foreclosure proceedings null and
void; (2) ordering GMC to pay Spouses Ramos attorney’s fees; and (3) not awarding damages in favor of GMC.
The CA sustained the decision of the trial court but anchored its ruling on a different ground. Contrary to the findings
of the trial court, the CA ruled that the requirements of posting and publication of notices under Act No. 3135 were
complied with. The CA, however, still found that GMC’s action against Spouses Ramos was premature, as they were
not in default when the action was filed on May 7, 1997.14
The CA ruled:
In this case, a careful scrutiny of the evidence on record shows that defendant-appellant GMC made no demand to
spouses Ramos for the full payment of their obligation. While it was alleged in the Answer as well as in the Affidavit
constituting the direct testimony of Joseph Dominise, the principal witness of defendant-appellant GMC, that demands
were sent to spouses Ramos, the documentary evidence proves otherwise. A perusal of the letters presented and
3
offered as evidence by defendant-appellant GMC did not "demand" but only request spouses Ramos to go to the
office of GMC to "discuss" the settlement of their account.15
According to the CA, however, the RTC erroneously awarded attorney’s fees to Spouses Ramos, since the presumption
of good faith on the part of GMC was not overturned.
The CA disposed of the case as follows:
WHEREFORE, and in view of the foregoing considerations, the Decision of the Regional Trial Court of Lipa City, Branch
12, dated May 21, 2005 is hereby AFFIRMED with MODIFICATION by deleting the award of attorney’s fees to plaintiffs-
appellees spouses Librado Ramos and Remedios Ramos.16
Hence, We have this appeal.
The Issues
A. WHETHER [THE CA] MAY CONSIDER ISSUES NOT ALLEGED AND DISCUSSED IN THE LOWER COURT AND
LIKEWISE NOT RAISED BY THE PARTIES ON APPEAL, THEREFORE HAD DECIDED THE CASE NOT IN ACCORD WITH
LAW AND APPLICABLE DECISIONS OF THE SUPREME COURT.
B. WHETHER [THE CA] ERRED IN RULING THAT PETITIONER GMC MADE NO DEMAND TO RESPONDENT SPOUSES
FOR THE FULL PAYMENT OF THEIR OBLIGATION CONSIDERING THAT THE LETTER DATED MARCH 31, 1997 OF
PETITIONER GMC TO RESPONDENT SPOUSES IS TANTAMOUNT TO A FINAL DEMAND TO PAY, THEREFORE IT
DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS.17
The Ruling of this Court
Can the CA consider matters not alleged?
GMC asserts that since the issue on the existence of the demand letter was not raised in the trial court, the CA, by
considering such issue, violated the basic requirements of fair play, justice, and due process.18
In their Comment,19 respondents-spouses aver that the CA has ample authority to rule on matters not assigned as
errors on appeal if these are indispensable or necessary to the just resolution of the pleaded issues.
In Diamonon v. Department of Labor and Employment,20 We explained that an appellate court has a broad discretionary
power in waiving the lack of assignment of errors in the following instances:
(a) Grounds not assigned as errors but affecting the jurisdiction of the court over the subject matter;
(b) Matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law;
(c) Matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and
complete resolution of the case or to serve the interests of a justice or to avoid dispensing piecemeal justice;
(d) Matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having
some bearing on the issue submitted which the parties failed to raise or which the lower court ignored;
(e) Matters not assigned as errors on appeal but closely related to an error assigned;
(f) Matters not assigned as errors on appeal but upon which the determination of a question properly assigned, is
dependent.
Paragraph (c) above applies to the instant case, for there would be a just and complete resolution of the appeal if there
is a ruling on whether the Spouses Ramos were actually in default of their obligation to GMC.
Was there sufficient demand?
We now go to the second issue raised by GMC. GMC asserts error on the part of the CA in finding that no demand was
made on Spouses Ramos to pay their obligation. On the contrary, it claims that its March 31, 1997 letter is akin to a
demand.
We disagree.
There are three requisites necessary for a finding of default. First, the obligation is demandable and liquidated; second,
the debtor delays performance; and third, the creditor judicially or extrajudicially requires the debtor’s performance. 21
According to the CA, GMC did not make a demand on Spouses Ramos but merely requested them to go to GMC’s office
to discuss the settlement of their account. In spite of the lack of demand made on the spouses, however, GMC
proceeded with the foreclosure proceedings. Neither was there any provision in the Deed of Real Estate Mortgage
allowing GMC to extrajudicially foreclose the mortgage without need of demand.
Indeed, Article 1169 of the Civil Code on delay requires the following:
Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially
demands from them the fulfilment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; x x x
As the contract in the instant case carries no such provision on demand not being necessary for delay to exist, We
agree with the appellate court that GMC should have first made a demand on the spouses before proceeding to foreclose
the real estate mortgage.
Development Bank of the Philippines v. Licuanan finds application to the instant case:
The issue of whether demand was made before the foreclosure was effected is essential.1avvphi1 If demand was
made and duly received by the respondents and the latter still did not pay, then they were already in default and
foreclosure was proper. However, if demand was not made, then the loans had not yet become due and demandable.
This meant that respondents had not defaulted in their payments and the foreclosure by petitioner was premature.
Foreclosure is valid only when the debtor is in default in the payment of his obligation. 22
In turn, whether or not demand was made is a question of fact.23 This petition filed under Rule 45 of the Rules of Court
shall raise only questions of law. For a question to be one of law, it must not involve an examination of the probative
value of the evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what
the law provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence
presented, the question posed is one of fact.24 It need not be reiterated that this Court is not a trier of facts.25 We will
defer to the factual findings of the trial court, because petitioner GMC has not shown any circumstances making this
case an exception to the rule.
WHEREFORE, the petition is DENIED. The CA Decision in CA-G.R. CR-H.C. No. 85400 is AFFIRMED.
4
G.R. No. 165662 May 3, 2006
SELEGNA MANAGEMENT AND DEVELOPMENT CORPORATION; and Spouses EDGARDO and ZENAIDA
ANGELES, Petitioners,
vs.
UNITED COCONUT PLANTERS BANK,* Respondent.
DECISION
A writ of preliminary injunction is issued to prevent an extrajudicial foreclosure, only upon a clear showing of a violation
of the mortgagor’s unmistakable right. Unsubstantiated allegations of denial of due process and prematurity of a loan
are not sufficient to defeat the mortgagee’s unmistakable right to an extrajudicial foreclosure.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the May 4, 2004 Amended Decision2 and
the October 12, 2004 Resolution3 of the Court of Appeals (CA) in CA-GR SP No. 70966. The challenged Amended
Decision disposed thus:
"WHEREFORE, the Motion for Reconsideration is GRANTED. The July 18, 2003 Decision is hereby REVERSED and SET
ASIDE and another one entered GRANTING the petition and REVERSING and SETTING ASIDE the March 15, 2002
Order of the Regional Trial Court, Branch 58, Makati City in Civil Case No. 99-1061."4
The assailed Resolution denied reconsideration.
The Facts
On September 19, 1995, Petitioners Selegna Management and Development Corporation and Spouses Edgardo and
Zenaida Angeles were granted a credit facility in the amount of P70 million by Respondent United Coconut Planters
Bank (UCPB). As security for this credit facility, petitioners executed real estate mortgages over several parcels of land
located in the cities of Muntinlupa, Las Piñas, Antipolo and Quezon; and over several condominium units in Makati.
Petitioners were likewise required to execute a promissory note in favor of respondent every time they availed of the
credit facility. As required in these notes, they paid the interest in monthly amortizations.
The parties stipulated in their Credit Agreement dated September 19, 1995, 5 that failure to pay "any availment of the
accommodation or interest, or any sum due" shall constitute an event of default, 6 which shall consequently allow
respondent bank to "declare [as immediately due and payable] all outstanding availments
of the accommodation together with accrued interest and any other sum payable." 7
In need of further business capital, petitioners obtained from UCPB an increase in their credit facility.8 For this purpose,
they executed a Promissory Note for P103,909,710.82, which was to mature on March 26, 1999. 9 In the same note,
they agreed to an interest rate of 21.75 percent per annum, payable by monthly amortizations.
On December 21, 1998, respondent sent petitioners a demand letter, worded as follows:
"Gentlemen:
 "With reference to your loan with principal outstanding balance of [P103,909,710.82], it appears from the records of
United Coconut Planters Bank that you failed to pay interest amortizations amounting to [P14,959,525.10] on the
Promissory Note on its due date, 30 May 1998.
"x x x xxx xxx
"Accordingly, formal demand is hereby made upon you to pay your outstanding obligations in the total amount of
P14,959,525.10, which includes unpaid interest and penalties as of 21 December 1998 due on the promissory note,
eight (8) days from date hereof."10
Respondent decided to invoke the acceleration provision in their Credit Agreement. Accordingly, through counsel, it
relayed its move to petitioners on January 25, 1999 in a letter, which we quote:
"Gentlemen:
"x x x xxx xxx
"It appears from the record of [UCPB] that you failed to pay the monthly interest due on said obligation since May
30, 1998 as well as the penalty charges due thereon. Despite repeated demands, you refused and continue to refuse
to pay the same. Under the Credit Agreements/Letter Agreements you executed, failure to pay when due any
installments of the loan or interest or any sum due thereunder, is an event of default.
"Consequently, we hereby inform you that our client has declared your principal obligation in the amount of
[P103,909,710.82], interest and sums payable under the Credit Agreement/Letter Agreement/Promissory Note to be
immediately due and payable.
"Accordingly, formal demand is hereby made upon you to please pay within five (5) days from date hereof or up to
January 29, 1999 the principal amount of [P103,909,710.82], with the interest, penalty and other charges due
thereon, which as of January 25, 1999 amounts to [P17,351,478.55]."11
Respondent sent another letter of demand on March 4, 1999. It contained a final demand on petitioners "to settle in
full [petitioners’] said past due obligation to [UCPB] within five (5) days from [petitioners’] receipt of [the] letter." 12
In response, petitioners paid respondent the amount of P10,199,473.96 as partial payment of the accrued
interests.13 Apparently unsatisfied, UCPB applied for extrajudicial foreclosure of petitioners’ mortgaged properties.
When petitioners received the Notice of Extra Judicial Foreclosure Sale on May 18, 1999, they requested UCPB to give
them a period of sixty (60) days to update their accrued interest charges; and to restructure or, in the alternative, to
negotiate for a takeout of their account.14
On May 25, 1999, the Bank denied petitioners’ request in these words:
"This is to reply to your letter dated May 20, 1999, which confirms the request you made the previous day when you
paid us a visit.
"As earlier advised, your account has been referred to external counsel for appropriate legal action. Demand has also
been made for the full settlement of your account.
"We regret that the Bank is unable to grant your request unless a definite offer is made for settlement." 15
In order to forestall the extrajudicial foreclosure scheduled for May 31, 1999, petitioners filed a Complaint 16 (docketed
as Civil Case No. 99-1061) for "Damages, Annulment of Interest, Penalty Increase and Accounting with Prayer for
5
Temporary Restraining Order/Preliminary Injunction." All subsequent proceedings in the trial court and in the CA
involved only the propriety of issuing a TRO and a writ of preliminary injunction.
Judge Josefina G. Salonga,17 then executive judge of the Regional Trial Court (RTC) of Makati City, denied the Urgent
Ex-parte Motion for Immediate Issuance of a Temporary Restraining Order (TRO), filed by petitioners. Judge Salonga
denied their motion on the ground that no great or irreparable injury would be inflicted on them if the parties would
first be heard.18 Unsatisfied, petitioners filed an Ex-Parte Motion for Reconsideration, by reason of which the case was
eventually raffled to Branch 148, presided by Judge Oscar B. Pimentel. 19
After due hearing, Judge Pimentel issued an Order dated May 31, 1999, granting a 20-day TRO on the scheduled
foreclosure of the Antipolo properties, on the ground that the Notice of Foreclosure had indicated an inexistent auction
venue.20 To resolve that issue, respondent filed a Manifestation21 that it would withdraw all its notices relative to the
foreclosure of the mortgaged properties, and that it would re-post or re-publish a new set of notices. Accordingly, in
an Order dated September 6, 1999,22 Judge Pimentel denied petitioners’ application for a TRO for having been rendered
moot by respondent’s Manifestation.23
Subsequently, respondent filed new applications for foreclosure in the cities where the mortgaged properties were
located. Undaunted, petitioners filed another Motion for the Issuance of a TRO/Injunction and a Supplementary Motion
for the Issuance of TRO/Injunction with Motion to Clarify Order of September 6, 1999.24
On October 27, 1999, Judge Pimentel issued an Order25 granting a 20-day TRO in favor of petitioners. After several
hearings, he issued his November 26, 1999 Order,26 granting their prayer for a writ of preliminary injunction on the
foreclosures, but only for a period of twenty (20) days. The Order states:
"Admitted by defendant witness is the fact that in all the notices of foreclosure sale of the properties of the plaintiffs
x x x it is stated in each notice that the property will be sold at public auction to satisfy the mortgage indebtedness
of plaintiffs which as of August 31, 1999 amounts to P131,854,773.98.
"x x x xxx xxx
"As the court sees it, this is the problem that should be addressed by the defendant in this case and in the meantime,
the notice of foreclosure sale should be held in abeyance until such time as these matters are clarified and cleared
by the defendants x x x Should the defendant be able to remedy the situation this court will have no more alternative
but to allow the defendant to proceed to its intended action.
"x x x xxx xxx
"WHEREFORE, premises considered, and finding compelling reason at this point in time to grant the application for
preliminary injunction, the same is hereby granted upon posting of a preliminary injunction bond in the amount of
P3,500,000.00 duly approved by the court, let a writ of preliminary injunction be issued."27
The corresponding Writ of Preliminary Injunction28 was issued on November 29, 1999.
Respondent moved for reconsideration. On the other hand, petitioners filed a Motion to Clarify Order of November 26,
1999. Conceding that the November 26 Order had granted an injunction during the pendency of the case, respondent
contended that the injunctive writ merely restrained it for a period of 20 (twenty) days.
On December 29, 2000, Judge Pimentel issued an Order29 granting respondent’s Motion for Reconsideration and
clarifying his November 26, 1999 Order in this manner:
"There may have been an error in the Writ of Preliminary Injunction issued dated November 29, 1999 as the same
[appeared to be actually] an extension of the TRO issued by this Court dated 27 October 1999 for another 20 days
period. Plaintiff’s seeks to enjoin defendants for an indefinite period pending trial of the case.
"Be that as it may, the Court actually did not have any intention of restraining the defendants from foreclosing
plaintiff[s’] property for an indefinite period and during the entire proceeding of the case x x x.
 "x x x xxx xxx
"What the [c]ourt wanted the defendants to do was to merely modify the notice of [the] auction sale in order that
the amount of P131,854,773.98 x x x would not appear to be the value of each property being sold on auction. x x
x.30
"WHEREFORE, premises considered and after finding merit on the arguments raised by herein defendants to be
impressed with merit, and having stated in the Order dated 26 November 1999 that no other alternative recourse is
available than to allow the defendants to proceed with their intended action, the Court hereby rules:
"1.] To give due course to defendant[‘]s motion for reconsideration, as the same is hereby GRANTED, however,
with reservation that this Order shall take effect upon after its[] finality[.]"31
Consequently, respondent proceeded with the foreclosure sale of some of the mortgaged properties. On the other
hand, petitioners filed an "[O]mnibus [M]otion [for Reconsideration] and to [S]pecify the [A]pplication of the P92
[M]illion [R]ealized from the [F]oreclosure [S]ale x x x."32 Before this Omnibus Motion could be resolved, Judge
Pimentel inhibited himself from hearing the case.33
The case was then re-raffled to Branch 58 of the RTC of Makati City, presided by Judge Escolastico U. Cruz. 34 The
proceedings before him were, however, all nullified by the Supreme Court in its En Banc Resolution dated September
18, 2001.35 He was eventually dismissed from service.36
The case was re-raffled to the pairing judge of Branch 58, Winlove M. Dumayas. On March 15, 2002, Judge Dumayas
granted petitioners’ Omnibus Motion for Reconsideration and Specification of the Foreclosure Proceeds, as follows:
"WHEREFORE, premises considered, the Motion to Reconsider the Order dated December 29, 2000 is hereby granted
and the Order of November 26, 1999 granting the preliminary injunction is reinstated subject however to the condition
that all properties of plaintiffs which were extrajudicially foreclosed though public bidding are subject to an accounting.
[A]nd for this purpose defendant bank is hereby given fifteen (15) days from notice hereof to render an accounting on
the proceeds realized from the foreclosure of plaintiffs’ mortgaged properties located in Antipolo, Makati, Muntinlupa
and Las Piñas."37
The aggrieved respondent filed before the Court of Appeals a Petition for Certiorari, seeking the nullification of the RTC
Order dated March 15, 2002, on the ground that it was issued with grave abuse of discretion.38
The Special Fifteenth Division, speaking through Justice Rebecca de Guia-Salvador, affirmed the ruling of Judge
Dumayas. It held that petitioners had a clear right to an injunction, based on the fact that respondent had kept them
in the dark as to how and why their principal obligation had ballooned to almost P132 million. The CA held that
respondent’s refusal to give them a detailed accounting had prevented the determination of the maturity of the
obligation and precluded the possibility of a foreclosure of the mortgaged properties. Moreover, their payment of P10
million had the effect of updating, and thereby averting the maturity of, the outstanding obligation. 39
Respondent filed a Motion for Reconsideration, which was granted by a Special Division of Five of the Former Special
Fifteenth Division.
Ruling of the Court of Appeals
Citing China Banking Corporation v. Court of Appeals, 40 the appellate court held in its Amended Decision41 that the
foreclosure proceedings should not be enjoined in the light of the clear failure of petitioners to meet their obligations
upon maturity.42
6
Also citing Zulueta v. Reyes,43 the CA, through Justice Jose Catral Mendoza, went on to say that a pending question on
accounting did not warrant an injunction on the foreclosure.
Parenthetically, the CA added that petitioners were not without recourse or protection. Further, it noted their pending
action for annulment of interest, damages and accounting. It likewise said that they could protect themselves by
causing the annotation of lis pendens on the titles of the mortgaged or foreclosed properties.
In his Separate Concurring Opinion,44 Justice Magdangal M. de Leon added that a prior accounting was not essential to
extrajudicial foreclosure. He cited Abaca Corporation v. Garcia, 45 which had ruled that Act No. 3135 did not require
mortgaged properties to be sold by lot or by only as much as would cover just the obligation. Thus, he concluded that
a request for accounting -- for the purpose of determining whether the proceeds of the auction would suffice to cover
the indebtedness -- would not justify an injunction on the foreclosure.
Petitioners filed a Motion for Reconsideration dated May 31, 2004, which the appellate court denied. 46
Hence, this Petition.47
Issues
Petitioners raise the following issues for our consideration:
"I. "Whether or not the Honorable Court of Appeals denied the petitioners of due process.
"II. "Whether or not the Honorable Court of Appeals supported its Amended Decision by invoking jurisprudence not
applicable and completely identical with the instant case.
"III. "Whether or not the Honorable Court of Appeals failed to establish its finding that RTC Judge Winlove Dumayas
has acted with grave abuse of discretion."48
The resolution of this case hinges on two issues: 1) whether petitioners are in default; and 2) whether there is basis
for preliminarily enjoining the extrajudicial foreclosure. The other issues raised will be dealt with in the resolution of
these two main questions.
The Court’s Ruling
The Petition has no merit.
First Issue: Default
The resolution of the present controversy necessarily begins with a determination of respondent’s right to foreclose the
mortgaged properties extrajudicially.
It is a settled rule of law that foreclosure is proper when the debtors are in default of the payment of their obligation.
In fact, the parties stipulated in their credit agreements, mortgage contracts and promissory notes that respondent
was authorized to foreclose on the mortgages, in case of a default by petitioners. That this authority was granted is
not disputed.
Mora solvendi, or debtor’s default, is defined as a delay 49 in the fulfillment of an obligation, by reason of a cause
imputable to the debtor.50 There are three requisites necessary for a finding of default. First, the obligation is
demandable and liquidated; second, the debtor delays performance; third, the creditor judicially or extrajudicially
requires the debtor’s performance.51
Mortgagors’ Default of Monthly Interest Amortizations
In the present case, the Promissory Note executed on March 29, 1998, expressly states that petitioners had an
obligation to pay monthly interest on the principal obligation. From respondent’s demand letter,52 it is clear and
undisputed by petitioners that they failed to meet those monthly payments since May 30, 1998. Their nonpayment is
defined as an "event of default" in the parties’ Credit Agreement, which we quote:
"Section 8.01. Events of Default. Each of the following events and occurrences shall constitute an Event of Default
of this AGREEMENT:
"1. The CLIENT shall fail to pay, when due, any availment of the Accommodation or interest, or any other sum due
thereunder in accordance with the terms thereof;1avvphil.net
"x x x xxx x x x"
"Section 8.02. Consequences of Default. (a) If an Event of Default shall occur and be continuing, the Bank may:
"1. By written notice to the CLIENT, declare all outstanding availments of the Accommodation together with
accrued interest and any other sum payable hereunder to be immediately due and payable without presentment,
demand or notice of any kind, other than the notice specifically required by this Section, all of which are expressly
waived by the CLIENT[.]"53
Considering that the contract is the law between the parties, 54 respondent is justified in invoking the acceleration clause
declaring the entire obligation immediately due and payable. 55 That clause obliged petitioners to pay the entire loan on
January 29, 1999, the date fixed by respondent.56
Petitioners’ failure to pay on that date set into effect Article IX of the Real Estate Mortgage,57 worded thus:
"If, at any time, an event of default as defined in the credit agreements, promissory notes and other related loan
documents referred to in paragraph 5 of ARTICLE I hereof (sic), or the MORTGAGOR and/or DEBTOR shall fail or
refuse to pay the SECURED OBLIGATIONS, or any of the amortization of such indebtedness when due, or to comply
any (sic) of the conditions and stipulations herein agreed, x x x then all the obligations of the MORTGAGOR secured
by this MORTGAGE and all the amortizations thereof shall immediately become due, payable and defaulted and the
MORTGAGEE may immediately foreclose this MORTGAGE judicially in accordance with the Rules of Court, or
extrajudicially in accordance with Act No. 3135, as amended, and Presidential Decree No. 385. For the purpose of
extrajudicial foreclosure, the MORTGAGOR hereby appoints the MORTGAGEE his/her/its attorney-in-fact to sell the
property mortgaged under Act No. 3135, as amended, to sign all documents and perform any act requisite and
necessary to accomplish said purpose and to appoint its substitutes as such attorney-in-fact with the same powers
as above specified. x x x[.]"58
The foregoing discussion satisfactorily shows that UCPB had every right to apply for extrajudicial foreclosure on the
basis of petitioners’ undisputed and continuing default.
Petitioners’ Debt Considered Liquidated Despite the Alleged Lack of Accounting
Petitioners do not even attempt to deny the aforementioned matters. They assert, though, that they have a right to a
detailed accounting before they can be declared in default. As regards the three requisites of default, they say that the
first requisite -- liquidated debt -- is absent. Continuing with foreclosure on the basis of an unliquidated obligation
allegedly violates their right to due process. They also maintain that their partial payment of P10 million averted the
maturity of their obligation.59
7
On the other hand, respondent asserts that questions regarding the running balance of the obligation of petitioners are
not valid reasons for restraining the foreclosure. Nevertheless, it maintains that it has furnished them a detailed
monthly statement of account.
A debt is liquidated when the amount is known or is determinable by inspection of the terms and conditions of the
relevant promissory notes and related documentation.60 Failure to furnish a debtor a detailed statement of account
does not ipso facto result in an unliquidated obligation.
Petitioners executed a Promissory Note, in which they stated that their principal obligation was in the amount of
P103,909,710.82, subject to an interest rate of 21.75 percent per annum.61 Pursuant to the parties’ Credit Agreement,
petitioners likewise know that any delay in the payment of the principal obligation will subject them to a penalty charge
of one percent per month, computed from the due date until the obligation is paid in full. 62
It is in fact clear from the agreement of the parties that when the payment is accelerated due to an event of default,
the penalty charge shall be based on the total principal amount outstanding, to be computed from the date of
acceleration until the obligation is paid in full.63 Their Credit Agreement even provides for the application of
payments.64 It appears from the agreements that the amount of total obligation is known or, at the very least,
determinable.
Moreover, when they made their partial payment, petitioners did not question the principal, interest or penalties
demanded from them. They only sought additional time to update their interest payments or to negotiate a possible
restructuring of their account.65 Hence, there is no basis for their allegation that a statement of account was necessary
for them to know their obligation. We cannot impair respondent’s right to foreclose the properties on the basis of their
unsubstantiated allegation of a violation of due process.
In Spouses Estares v. CA,66 we did not find any justification to grant a preliminary injunction, even when the mortgagors
were disputing the amount being sought from them. We held in that case that "[u]pon the nonpayment of the loan,
which was secured by the mortgage, the mortgaged property is properly subject to a foreclosure sale." 67
Compared with Estares, the denial of injunctive relief in this case is even more imperative, because the present
petitioners do not even assail the amounts due from them. Neither do they contend that a detailed accounting would
show that they are not in default. A pending question regarding the due amount was not a sufficient reason to enjoin
the foreclosure in Estares. Hence, with more reason should injunction be denied in the instant case, in which there is
no dispute as to the outstanding obligation of petitioners.
At any rate, whether respondent furnished them a detailed statement of account is a question of fact that this Court
need not and will not resolve in this instance. As held in Zulueta v. Reyes,68 in which there was no genuine controversy
as to the amounts due and demandable, the foreclosure should not be restrained by the unnecessary question of
accounting.
Maturity of the Loan Not Averted by Partial Compliance with Respondent’s Demand
Petitioners allege that their partial payment of P10 million on March 25, 1999, had the effect of forestalling the maturity
of the loan;69 hence the foreclosure proceedings are premature. 70 We disagree.
To be sure, their partial payment did not extinguish the obligation. The Civil Code states that a debt is not paid "unless
the thing x x x in which the obligation consists has been completely delivered x x x."71 Besides, a late partial payment
could not have possibly forestalled a long-expired maturity date.
The only possible legal relevance of the partial payment was to evidence the mortgagee’s amenability to granting the
mortgagor a grace period. Because the partial payment would constitute a waiver of the mortgagee’s vested right to
foreclose, the grant of a grace period cannot be casually assumed;72 the bank’s agreement must be clearly shown.
Without a doubt, no express agreement was entered into by the parties. Petitioners only assumed that their partial
payment had satisfied respondent’s demand and obtained for them more time to update their account.73
Petitioners are mistaken. When creditors receive partial payment, they are not ipso facto deemed to have abandoned
their prior demand for full payment. Article 1235 of the Civil Code provides:
"When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any
protest or objection, the obligation is deemed fully complied with."
Thus, to imply that creditors accept partial payment as complete performance of their obligation, their acceptance must
be made under circumstances that indicate their intention to consider the performance complete and to renounce their
claim arising from the defect.74
‘Every court should remember that an injunction is a limitation upon the freedom of action of the defendant and
should not be granted lightly or precipitately. It should be granted only when the court is fully satisfied that the
law permits it and the emergency demands it.’"80 (Citations omitted)
Petitioners do not have any clear right to be protected. As shown in our earlier findings, they failed to substantiate
their allegations that their right to due process had been violated and the maturity of their obligation forestalled. Since
they indisputably failed to meet their obligations in spite of repeated demands, we hold that there is no legal justification
to enjoin respondent from enforcing its undeniable right to foreclose the mortgaged properties.
In any case, petitioners will not be deprived outrightly of their property. Pursuant to Section 47 of the General Banking
Law of 2000,81 mortgagors who have judicially or extrajudicially sold their real property for the full or partial payment
of their obligation have the right to redeem the property within one year after the sale. They can redeem their real
estate by paying the amount due, with interest rate specified, under the mortgage deed; as well as all the costs and
expenses incurred by the bank.82

There are no circumstances that would indicate a renunciation of the right of respondent to foreclose the mortgaged Moreover, in extrajudicial foreclosures, petitioners have the right to receive any surplus in the selling price. This right
properties extrajudicially, on the basis of petitioners’ continuing default. On the contrary, it asserted its right by filing was recognized in Sulit v. CA,83 in which the Court held that "if the mortgagee is retaining more of the proceeds of the
an application for extrajudicial foreclosure after receiving the partial payment. Clearly, it did not intend to give sale than he is entitled to, this fact alone will not affect the validity of the sale but simply gives the mortgagor a cause
petitioners more time to meet their obligation. of action to recover such surplus."84

Parenthetically, respondent cannot be reproved for accepting their partial payment. While Article 1248 of the Civil Code Petitioners failed to demonstrate the prejudice they would probably suffer by reason of the foreclosure. Also, it is clear
states that creditors cannot be compelled to accept partial payments, it does not prohibit them from accepting such that they would be adequately protected by law. Hence, we find no legal basis to reverse the assailed Amended Decision
payments. of the CA dated May 4, 2004.

Second Issue: Enjoining the Extrajudicial Foreclosure WHEREFORE, the Petition is DENIED and the assailed Amended Decision and Resolution AFFIRMED. Costs against
petitioners.
A writ of preliminary injunction is a provisional remedy that may be resorted to by litigants, only to protect or preserve
their rights or interests during the pendency of the principal action. To authorize a temporary injunction, the plaintiff
must show, at least prima facie, a right to the final relief. 75 Moreover, it must show that the invasion of the right sought
to be protected is material and substantial, and that there is an urgent and paramount necessity for the writ to prevent
serious damage.76

In the absence of a clear legal right, the issuance of the injunctive writ constitutes grave abuse of discretion. Injunction
is not designed to protect contingent or future rights. It is not proper when the complainant’s right is doubtful or
disputed.77

As a general rule, courts should avoid issuing this writ, which in effect disposes of the main case without trial. 78 In
Manila International Airport Authority v. CA,79 we urged courts to exercise caution in issuing the writ, as follows:
"x x x. We remind trial courts that while generally the grant of a writ of preliminary injunction rests on the sound
discretion of the court taking cognizance of the case, extreme caution must be observed in the exercise of such
discretion. The discretion of the court a quo to grant an injunctive writ must be exercised based on the grounds and
in the manner provided by law. Thus, the Court declared in Garcia v. Burgos:
‘It has been consistently held that there is no power the exercise of which is more delicate, which requires greater
caution, deliberation and sound discretion, or more dangerous in a doubtful case, than the issuance of an injunction.
It is the strong arm of equity that should never be extended unless to cases of great injury, where courts of law
cannot afford an adequate or commensurate remedy in damages.

8
G.R. No. 184458 January 14, 2015 Manila, February 24, 1995[.]
RODRIGO RIVERA, Petitioner, (SGD.) RODRIGO RIVERA4
vs.
SPOUSES SALVADOR CHUA AND VIOLETA S. CHUA, Respondents. In October 1998, almost three years from the date of payment stipulated in the promissory note, Rivera, as partial
x-----------------------x payment for the loan, issued and delivered to the SpousesChua, as payee, a check numbered 012467, dated 30
G.R. No. 184472 December 1998, drawn against Rivera’s current account with the Philippine Commercial International Bank (PCIB) in
SPS. SALVADOR CHUA and VIOLETA S. CHUA, Petitioners, the amount of ₱25,000.00.
vs.
RODRIGO RIVERA, Respondent.
On 21 December 1998, the Spouses Chua received another check presumably issued by Rivera, likewise drawn against
Rivera’s PCIB current account, numbered 013224, duly signed and dated, but blank as to payee and amount.
Before us are consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of Court assailing the Ostensibly, as per understanding by the parties, PCIB Check No. 013224 was issued in the amount of ₱133,454.00
Decision1 of the Court of Appeals in CA-G.R. SP No. 90609 which affirmed with modification the separate rulings of the with "cash" as payee. Purportedly, both checks were simply partial payment for Rivera’s loan in the principal amount
Manila City trial courts, the Regional Trial Court, Branch 17 in Civil Case No. 02-1052562 and the Metropolitan Trial of ₱120,000.00.
Court (MeTC), Branch 30, in Civil Case No. 163661,3 a case for collection of a sum of money due a promissory note.
While all three (3) lower courts upheld the validity and authenticity of the promissory note as duly signed by the obligor,
Rodrigo Rivera (Rivera), petitioner in G.R. No. 184458, the appellate court modified the trial courts’ consistent awards: Upon presentment for payment, the two checks were dishonored for the reason "account closed." As of 31 May 1999,
(1) the stipulated interest rate of sixty percent (60%) reduced to twelve percent (12%) per annumcomputed from the the amount due the Spouses Chua was pegged at ₱366,000.00 covering the principal of ₱120,000.00 plus five percent
date of judicial or extrajudicial demand, and (2) reinstatement of the award of attorney’s fees also in a reduced amount (5%) interest per month from 1 January 1996 to 31 May 1999.
of ₱50,000.00.
The Spouses Chua alleged that they have repeatedly demanded payment from Rivera to no avail. Because of Rivera’s
In G.R. No. 184458, Rivera persists in his contention that there was no valid promissory note and questions the entire unjustified refusal to pay, the Spouses Chua were constrained to file a suit on 11 June 1999. The case was raffled
ruling of the lower courts. On the other hand, petitioners in G.R. No. 184472, Spouses Salvador and Violeta Chua before the MeTC, Branch 30, Manila and docketed as Civil Case No. 163661.
(Spouses Chua), take exception to the appellate court’s reduction of the stipulated interest rate of sixty percent (60%)
to twelve percent (12%) per annum. In his Answer with Compulsory Counterclaim, Rivera countered that: (1) he never executed the subject Promissory
Note; (2) in all instances when he obtained a loan from the Spouses Chua, the loans were always covered by a security;
We proceed to the facts. (3) at the time of the filing of the complaint, he still had an existing indebtedness to the Spouses Chua, secured by a
real estate mortgage, but not yet in default; (4) PCIB Check No. 132224 signed by him which he delivered to the
Spouses Chua on 21 December 1998, should have been issued in the amount of only 1,300.00, representing the
The parties were friends of long standing having known each other since 1973: Rivera and Salvador are kumpadres, amount he received from the Spouses Chua’s saleslady; (5) contrary to the supposed agreement, the Spouses Chua
the former is the godfather of the Spouses Chua’s son. presented the check for payment in the amount of ₱133,454.00; and (6) there was no demand for payment of the
amount of ₱120,000.00 prior to the encashment of PCIB Check No. 0132224.5
On 24 February 1995, Rivera obtained a loan from the Spouses Chua:
In the main, Rivera claimed forgery of the subject Promissory Note and denied his indebtedness thereunder.
PROMISSORY NOTE
The MeTC summarized the testimonies of both parties’ respective witnesses:
120,000.00 [The spouses Chua’s] evidence include[s] documentary evidence and oral evidence (consisting of the testimonies of
[the spouses] Chua and NBI Senior Documents Examiner Antonio Magbojos). x x x
FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR C. CHUA and VIOLETA SY CHUA, the
sum of One Hundred Twenty Thousand Philippine Currency (₱120,000.00) on December 31, 1995. Witness Magbojos enumerated his credentials as follows: joined the NBI (1987); NBI document examiner (1989); NBI
Senior Document Examiner (1994 to the date he testified); registered criminologist; graduate of 18th Basic Training
It is agreed and understood that failure on my part to pay the amount of (120,000.00) One Hundred Twenty Thousand Course [i]n Questioned Document Examination conducted by the NBI; twice attended a seminar on US Dollar
Pesos on December 31, 1995. (sic) I agree to pay the sum equivalent to FIVE PERCENT (5%) interest monthly from Counterfeit Detection conducted by the US Embassy in Manila; attended a seminar on Effective Methodology in Teaching
the date of default until the entire obligation is fully paid for. and Instructional design conducted by the NBI Academy; seminar lecturer on Questioned Documents, Signature
Verification and/or Detection; had examined more than a hundred thousand questioned documents at the time he
testified.
Should this note be referred to a lawyer for collection, I agree to pay the further sum equivalent to twenty percent
(20%) of the total amount due and payable as and for attorney’s fees which in no case shall be less than ₱5,000.00
and to pay in addition the cost of suit and other incidental litigation expense. Upon [order of the MeTC], Mr. Magbojos examined the purported signature of [Rivera] appearing in the Promissory
Note and compared the signature thereon with the specimen signatures of [Rivera] appearing on several documents.
After a thorough study, examination, and comparison of the signature on the questioned document (Promissory Note)
Any action which may arise in connection with this note shall be brought in the proper Court of the City of Manila.

9
and the specimen signatures on the documents submitted to him, he concluded that the questioned signature appearing
in the Promissory Note and the specimen signatures of [Rivera] appearing on the other documents submitted were
written by one and the same person. In connection with his findings, Magbojos prepared Questioned Documents Report
No. 712-1000 dated 8 January 2001, with the following conclusion: "The questioned and the standard specimen
signatures RODGRIGO RIVERA were written by one and the same person."
[Rivera] testified as follows: he and [respondent] Salvador are "kumpadres;" in May 1998, he obtained a loan from
[respondent] Salvador and executed a real estate mortgage over a parcel of land in favor of [respondent Salvador] as
collateral; aside from this loan, in October, 1998 he borrowed ₱25,000.00 from Salvador and issued PCIB Check No.
126407 dated 30 December 1998; he expressly denied execution of the Promissory Note dated 24 February 1995 and
alleged that the signature appearing thereon was not his signature; [respondent Salvador’s] claim that PCIB Check No.
0132224 was partial payment for the Promissory Note was not true, the truth being that he delivered the check to
[respondent Salvador] with the space for amount left blank as he and [respondent] Salvador had agreed that the latter
was to fill it in with the amount of ₱1,300.00 which amount he owed [the spouses Chua]; however, on 29 December
1998 [respondent] Salvador called him and told him that he had written ₱133,454.00 instead of ₱1,300.00; x x x. To
rebut the testimony of NBI Senior Document Examiner Magbojos, [Rivera] reiterated his averment that the signature
appearing on the Promissory Note was not his signature and that he did not execute the Promissory Note. 6
After trial, the MeTC ruled in favor of the Spouses Chua:
WHEREFORE, [Rivera] is required to pay [the spouses Chua]: ₱120,000.00 plus stipulated interest at the rate of 5%
per month from 1 January 1996, and legal interest at the rate of 12% percent per annum from 11 June 1999, as
actual and compensatory damages; 20% of the whole amount due as attorney’s fees. 7
On appeal, the Regional Trial Court, Branch 17, Manila affirmed the Decision of the MeTC, but deleted the award of
attorney’s fees to the Spouses Chua:
WHEREFORE, except as to the amount of attorney’s fees which is hereby deleted, the rest of the Decision dated
October 21, 2002 is hereby AFFIRMED.8
Both trial courts found the Promissory Note as authentic and validly bore the signature of Rivera. Undaunted, Rivera
appealed to the Court of Appeals which affirmed Rivera’s liability under the Promissory Note, reduced the imposition of
interest on the loan from 60% to 12% per annum, and reinstated the award of attorney’s fees in favor of the Spouses
Chua:
WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject to the MODIFICATION that the interest rate
of 60% per annum is hereby reduced to12% per annum and the award of attorney’s fees is reinstated atthe reduced
amount of ₱50,000.00 Costs against [Rivera].9
Hence, these consolidated petitions for review on certiorariof Rivera in G.R. No. 184458 and the Spouses Chua in G.R.
No. 184472, respectively raising the following issues:
A. In G.R. No. 184458
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE RULING OF THE RTC AND
M[e]TC THAT THERE WAS A VALID PROMISSORY NOTE EXECUTED BY [RIVERA].
2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT DEMAND IS NO LONGER
NECESSARY AND IN APPLYING THE PROVISIONS OF THE NEGOTIABLE INSTRUMENTS LAW.
3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN AWARDING ATTORNEY’S FEES DESPITE THE
FACT THAT THE SAME HAS NO BASIS IN FACT AND IN LAW AND DESPITE THE FACT THAT [THE SPOUSES CHUA]
DID NOT APPEAL FROM THE DECISION OF THE RTC DELETING THE AWARD OF ATTORNEY’S FEES.10
B. In G.R. No. 184472
10
[WHETHER OR NOT] THE HONORABLE COURT OF APPEALS COMMITTED GROSS LEGAL ERROR WHEN IT MODIFIED
THE APPEALED JUDGMENT BY REDUCING THE INTEREST RATE FROM 60% PER ANNUM TO 12% PER ANNUM IN SPITE
OF THE FACT THAT RIVERA NEVER RAISED IN HIS ANSWER THE DEFENSE THAT THE SAID STIPULATED RATE OF
INTEREST IS EXORBITANT, UNCONSCIONABLE, UNREASONABLE, INEQUITABLE, ILLEGAL, IMMORAL OR VOID.11
As early as 15 December 2008, wealready disposed of G.R. No. 184472 and denied the petition, via a Minute Resolution,
for failure to sufficiently show any reversible error in the ruling of the appellate court specifically concerning the correct
rate of interest on Rivera’s indebtedness under the Promissory Note. 12
On 26 February 2009, Entry of Judgment was made in G.R. No. 184472.
Thus, what remains for our disposition is G.R. No. 184458, the appeal of Rivera questioning the entire ruling of the
Court of Appeals in CA-G.R. SP No. 90609.
Rivera continues to deny that heexecuted the Promissory Note; he claims that given his friendship withthe Spouses
Chua who were money lenders, he has been able to maintain a loan account with them. However, each of these loan
transactions was respectively "secured by checks or sufficient collateral."
Rivera points out that the Spouses Chua "never demanded payment for the loan nor interest thereof (sic) from [Rivera]
for almost four (4) years from the time of the alleged default in payment [i.e., after December 31, 1995]."13
On the issue of the supposed forgery of the promissory note, we are not inclined to depart from the lower courts’
uniform rulings that Rivera indeed signed it.
Rivera offers no evidence for his asseveration that his signature on the promissory note was forged, only that the
signature is not his and varies from his usual signature. He likewise makes a confusing defense of having previously
obtained loans from the Spouses Chua who were money lenders and who had allowed him a period of "almost four (4)
years" before demanding payment of the loan under the Promissory Note.
First, we cannot give credence to such a naked claim of forgery over the testimony of the National Bureau of
Investigation (NBI) handwriting expert on the integrity of the promissory note. On that score, the appellate court aptly
disabled Rivera’s contention:
[Rivera] failed to adduce clear and convincing evidence that the signature on the promissory note is a forgery. The
fact of forgery cannot be presumed but must be proved by clear, positive and convincing evidence. Mere variance of
signatures cannot be considered as conclusive proof that the same was forged. Save for the denial of Rivera that the
signature on the note was not his, there is nothing in the records to support his claim of forgery. And while it is true
that resort to experts is not mandatory or indispensable to the examination of alleged forged documents, the opinions
of handwriting experts are nevertheless helpful in the court’s determination of a document’s authenticity.
To be sure, a bare denial will not suffice to overcome the positive value of the promissory note and the testimony of
the NBI witness. In fact, even a perfunctory comparison of the signatures offered in evidence would lead to the
conclusion that the signatures were made by one and the same person.
It is a basic rule in civil cases that the party having the burden of proof must establish his case by preponderance of
evidence, which simply means "evidence which is of greater weight, or more convincing than that which is offered in
opposition to it."
Evaluating the evidence on record, we are convinced that [the Spouses Chua] have established a prima faciecase in
their favor, hence, the burden of evidence has shifted to [Rivera] to prove his allegation of forgery. Unfortunately for
[Rivera], he failed to substantiate his defense. 14 Well-entrenched in jurisprudence is the rule that factual findings of
the trial court, especially when affirmed by the appellate court, are accorded the highest degree of respect and are
considered conclusive between the parties.15 A review of such findings by this Court is not warranted except upon a
showing of highly meritorious circumstances, such as: (1) when the findings of a trial court are grounded entirely on
speculation, surmises or conjectures; (2) when a lower court's inference from its factual findings is manifestly mistaken,
absurd or impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4) when the findings of
the appellate court go beyond the issues of the case, or fail to notice certain relevant facts which, if properly considered,
will justify a different conclusion; (5) when there is a misappreciation of facts; (6) when the findings of fact are
conclusions without mention of the specific evidence on which they are based, are premised on the absence of evidence,
or are contradicted by evidence on record.16 None of these exceptions obtains in this instance. There is no reason to
depart from the separate factual findings of the three (3) lower courts on the validity of Rivera’s signature reflected in
the Promissory Note.
Indeed, Rivera had the burden ofproving the material allegations which he sets up in his Answer to the plaintiff’s claim
or cause of action, upon which issue is joined, whether they relate to the whole case or only to certain issues in the
case.17
In this case, Rivera’s bare assertion is unsubstantiated and directly disputed by the testimony of a handwriting expert
from the NBI. While it is true that resort to experts is not mandatory or indispensable to the examination or the
comparison of handwriting, the trial courts in this case, on its own, using the handwriting expert testimony only as an
aid, found the disputed document valid.18
Hence, the MeTC ruled that:
[Rivera] executed the Promissory Note after consideration of the following: categorical statement of [respondent]
Salvador that [Rivera] signed the Promissory Note before him, in his ([Rivera’s]) house; the conclusion of NBI Senior
Documents Examiner that the questioned signature (appearing on the Promissory Note) and standard specimen
signatures "Rodrigo Rivera" "were written by one and the same person"; actual view at the hearing of the enlarged
photographs of the questioned signature and the standard specimen signatures.19
Specifically, Rivera insists that: "[i]f that promissory note indeed exists, it is beyond logic for a money lender to
extend another loan on May 4, 1998 secured by a real estate mortgage, when he was already in default and has not
been paying any interest for a loan incurred in February 1995."20
We disagree.
It is likewise likely that precisely because of the long standing friendship of the parties as "kumpadres," Rivera was
allowed another loan, albeit this time secured by a real estate mortgage, which will cover Rivera’s loan should Rivera
fail to pay. There is nothing inconsistent with the Spouses Chua’s two (2) and successive loan accommodations to
Rivera: one, secured by a real estate mortgage and the other, secured by only a Promissory Note.
Also completely plausible is thatgiven the relationship between the parties, Rivera was allowed a substantial amount
of time before the Spouses Chua demanded payment of the obligation due under the Promissory Note.
In all, Rivera’s evidence or lack thereof consisted only of a barefaced claim of forgery and a discordant defense to
assail the authenticity and validity of the Promissory Note. Although the burden of proof rested on the Spouses Chua
11
having instituted the civil case and after they established a prima facie case against Rivera, the burden of evidence
shifted to the latter to establish his defense.21 Consequently, Rivera failed to discharge the burden of evidence, refute
the existence of the Promissory Note duly signed by him and subsequently, that he did not fail to pay his obligation
thereunder. On the whole, there was no question left on where the respective evidence of the parties preponderated—
in favor of plaintiffs, the Spouses Chua. Rivera next argues that even assuming the validity of the Promissory Note,
demand was still necessary in order to charge him liable thereunder. Rivera argues that it was grave error on the
part of the appellate court to apply Section 70 of the Negotiable Instruments Law (NIL).22
We agree that the subject promissory note is not a negotiable instrument and the provisions of the NIL do not apply
to this case. Section 1 of the NIL requires the concurrence of the following elements to be a negotiable instrument:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable
certainty.
On the other hand, Section 184 of the NIL defines what negotiable promissory note is: SECTION 184. Promissory Note,
Defined. – A negotiable promissory note within the meaning of this Act is an unconditional promise in writing made by
one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a
sum certain in money to order or to bearer. Where a note is drawn to the maker’s own order, it is not complete until
indorsed by him.
The Promissory Note in this case is made out to specific persons, herein respondents, the Spouses Chua, and not to
order or to bearer, or to the order of the Spouses Chua as payees. However, even if Rivera’s Promissory Note is not a
negotiable instrument and therefore outside the coverage of Section 70 of the NIL which provides that presentment
for payment is not necessary to charge the person liable on the instrument, Rivera is still liable under the terms of the
Promissory Note that he issued.
The Promissory Note is unequivocal about the date when the obligation falls due and becomes demandable—31
December 1995. As of 1 January 1996, Rivera had already incurred in delay when he failed to pay the amount of
₱120,000.00 due to the Spouses Chua on 31 December 1995 under the Promissory Note.
Article 1169 of the Civil Code explicitly provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when
the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the
contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by
the other begins. (Emphasis supplied)
There are four instances when demand is not necessary to constitute the debtor in default: (1) when there is an express
stipulation to that effect; (2) where the law so provides; (3) when the period is the controlling motive or the principal
inducement for the creation of the obligation; and (4) where demand would be useless. In the first two paragraphs, it
is not sufficient that the law or obligation fixes a date for performance; it must further state expressly that after the
period lapses, default will commence.
We refer to the clause in the Promissory Note containing the stipulation of interest:
It is agreed and understood that failure on my part to pay the amount of (₱120,000.00) One Hundred Twenty
Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum equivalent to FIVE PERCENT (5%) interest
monthly from the date of default until the entire obligation is fully paid for.23
which expressly requires the debtor (Rivera) to pay a 5% monthly interest from the "date of default" until the entire
obligation is fully paid for. The parties evidently agreed that the maturity of the obligation at a date certain, 31
December 1995, will give rise to the obligation to pay interest. The Promissory Note expressly provided that after 31
December 1995, default commences and the stipulation on payment of interest starts.
The date of default under the Promissory Note is 1 January 1996, the day following 31 December 1995, the due date
of the obligation. On that date, Rivera became liable for the stipulated interest which the Promissory Note says is
equivalent to 5% a month. In sum, until 31 December 1995, demand was not necessary before Rivera could be held
liable for the principal amount of ₱120,000.00. Thereafter, on 1 January 1996, upon default, Rivera became liable to
pay the Spouses Chua damages, in the form of stipulated interest.
The liability for damages of those who default, including those who are guilty of delay, in the performance of their
obligations is laid down on Article 117024 of the Civil Code.
Corollary thereto, Article 2209 solidifies the consequence of payment of interest as an indemnity for damages when
the obligor incurs in delay:
Art. 2209. If the obligation consists inthe payment of a sum of money, and the debtor incurs in delay, the indemnity
for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six percent per annum. (Emphasis supplied)
Article 2209 is specifically applicable in this instance where: (1) the obligation is for a sum of money; (2) the debtor,
Rivera, incurred in delay when he failed to pay on or before 31 December 1995; and (3) the Promissory Note provides
for an indemnity for damages upon default of Rivera which is the payment of a 5%monthly interest from the date of
default.
We do not consider the stipulation on payment of interest in this case as a penal clause although Rivera, as obligor,
assumed to pay additional 5% monthly interest on the principal amount of ₱120,000.00 upon default.
Article 1226 of the Civil Code provides:
Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment
of interests in case of noncompliance, if there isno stipulation to the contrary. Nevertheless, damages shall be paid
if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.
The penal clause is generally undertaken to insure performance and works as either, or both, punishment and
reparation. It is an exception to the general rules on recovery of losses and damages. As an exception to the general
rule, a penal clause must be specifically set forth in the obligation. 25
In high relief, the stipulation in the Promissory Note is designated as payment of interest, not as a penal clause, and
is simply an indemnity for damages incurred by the Spouses Chua because Rivera defaulted in the payment of the
12
amount of ₱120,000.00. The measure of damages for the Rivera’s delay is limited to the interest stipulated in the
Promissory Note. In apt instances, in default of stipulation, the interest is that provided by law. 26
In this instance, the parties stipulated that in case of default, Rivera will pay interest at the rate of 5% a month or 60%
per annum. On this score, the appellate court ruled:
It bears emphasizing that the undertaking based on the note clearly states the date of payment tobe 31 December
1995. Given this circumstance, demand by the creditor isno longer necessary in order that delay may exist since the
contract itself already expressly so declares. The mere failure of [Spouses Chua] to immediately demand or collect
payment of the value of the note does not exonerate [Rivera] from his liability therefrom. Verily, the trial court
committed no reversible error when it imposed interest from 1 January 1996 on the ratiocination that [Spouses Chua]
were relieved from making demand under Article 1169 of the Civil Code.
As observed by [Rivera], the stipulated interest of 5% per month or 60% per annum in addition to legal interests
and attorney’s fees is, indeed, highly iniquitous and unreasonable. Stipulated interest rates are illegal if they are
unconscionable and the Court is allowed to temper interest rates when necessary. Since the interest rate agreed
upon is void, the parties are considered to have no stipulation regarding the interest rate, thus, the rate of interest
should be 12% per annum computed from the date of judicial or extrajudicial demand. 27
The appellate court found the 5% a month or 60% per annum interest rate, on top of the legal interest and attorney’s
fees, steep, tantamount to it being illegal, iniquitous and unconscionable. Significantly, the issue on payment of interest
has been squarely disposed of in G.R. No. 184472 denying the petition of the Spouses Chua for failure to sufficiently
showany reversible error in the ruling of the appellate court, specifically the reduction of the interest rate imposed on
Rivera’s indebtedness under the Promissory Note. Ultimately, the denial of the petition in G.R. No. 184472 is res
judicata in its concept of "bar by prior judgment" on whether the Court of Appeals correctly reduced the interest rate
stipulated in the Promissory Note.
Res judicata applies in the concept of "bar by prior judgment" if the following requisites concur: (1) the former judgment
or order must be final; (2) the judgment or order must be on the merits; (3) the decision must have been rendered by
a court having jurisdiction over the subject matter and the parties; and (4) there must be, between the first and the
second action, identity of parties, of subject matter and of causes of action. 28
In this case, the petitions in G.R. Nos. 184458 and 184472 involve an identity of parties and subject matter raising
specifically errors in the Decision of the Court of Appeals. Where the Court of Appeals’ disposition on the propriety of
the reduction of the interest rate was raised by the Spouses Chua in G.R. No. 184472, our ruling thereon affirming the
Court of Appeals is a "bar by prior judgment."
At the time interest accrued from 1 January 1996, the date of default under the Promissory Note, the then prevailing
rate of legal interest was 12% per annum under Central Bank (CB) Circular No. 416 in cases involving the loan or for
bearance of money.29 Thus, the legal interest accruing from the Promissory Note is 12% per annum from the date of
default on 1 January 1996. However, the 12% per annumrate of legal interest is only applicable until 30 June 2013,
before the advent and effectivity of Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013 reducing the
rate of legal interest to 6% per annum. Pursuant to our ruling in Nacar v. Gallery Frames,30 BSP Circular No. 799 is
prospectively applied from 1 July 2013. In short, the applicable rate of legal interest from 1 January 1996, the date
when Rivera defaulted, to date when this Decision becomes final and executor is divided into two periods reflecting two
rates of legal interest: (1) 12% per annum from 1 January 1996 to 30 June 2013; and (2) 6% per annum FROM 1 July
2013 to date when this Decision becomes final and executory.
As for the legal interest accruing from 11 June 1999, when judicial demand was made, to the date when this Decision Face value of the Stipulated Interest A & B Interest due earning legal Attorney’s fees Total
becomes final and executory, such is likewise divided into two periods: (1) 12% per annum from 11 June 1999, the Promissory Note interest A & B Amount
date of judicial demand to 30 June 2013; and (2) 6% per annum from 1 July 2013 to date when this Decision becomes February 24, 1995 to A. January 1, 1996 to A. June 11, 1999 (date of Wholesale
final and executor.31 We base this imposition of interest on interest due earning legal interest on Article 2212 of the December 31, 1995 June 30, 2013 judicial demand) to June Amount
30, 2013
Civil Code which provides that "interest due shall earn legal interest from the time it is judicially demanded, although
B. July 1 2013 to date B. July 1, 2013 to date
the obligation may be silent on this point." when this Decision when this Decision
becomes final and becomes final and
executory executory
From the time of judicial demand, 11 June 1999, the actual amount owed by Rivera to the Spouses Chua could already
₱120,000.00 A. 12 % per annumon A. 12% per annumon the ₱50,000.00 Total amount
be determined with reasonable certainty given the wording of the Promissory Note.32 the principal amount of total amount of column 2 of Columns
₱120,000.00 B. 6% per annumon the 1-4
B. 6% per annumon the total amount of column 235
We cite our recent ruling in Nacar v. Gallery Frames:33 principal amount of
₱120,000.00

I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts is breached, The total amount owing to the Spouses Chua set forth in this Decision shall further earn legal interest at the rate of
the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code 6% per annum computed from its finality until full payment thereof, the interim period being deemed to be a
govern in determining the measure of recoverable damages. forbearance of credit.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of WHEREFORE, the petition in G.R. No. 184458 is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No. 90609
interest, as well as the accrual thereof, is imposed, as follows: is MODIFIED. Petitioner Rodrigo Rivera is ordered to pay respondents Spouse Salvador and Violeta Chua the following:
(1) the principal amount of ₱120,000.00;
(2) legal interest of 12% per annumof the principal amount of ₱120,000.00 reckoned from 1 January 1996 until 30
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or for bearance
June 2013;
of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest
(3) legal interest of 6% per annumof the principal amount of ₱120,000.00 form 1 July 2013 to date when this Decision
due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of
becomes final and executory;
interest shall be 6% per annum to be computed from default, i.e., from judicial or extra judicial demand under and
(4) 12% per annumapplied to the total of paragraphs 2 and 3 from 11 June 1999, date of judicial demand, to 30
subject to the provisions ofArticle 1169 of the Civil Code.
June 2013, as interest due earning legal interest;
(5) 6% per annumapplied to the total amount of paragraphs 2 and 3 from 1 July 2013 to date when this Decision
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of becomes final and executor, asinterest due earning legal interest;
damages awarded may be imposed at the discretion of the court at the rate of 6% per annum.1âwphi1 No interest, (6) Attorney’s fees in the amount of ₱50,000.00; and
however, shall be adjudged on unliquidated claims or damages, except when or until the demand can be established (7) 6% per annum interest on the total of the monetary awards from the finality of this Decision until full payment
with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest thereof.
shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when
such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run
Costs against petitioner Rodrigo Rivera.
only from the date the judgment of the court is made (at which time the quantification of damages may be deemed
to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be
on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6%
per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to
a for bearance of credit. And, in addition to the above, judgments that have become final and executory prior to
July 1, 2013, shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.

On the reinstatement of the award of attorney’s fees based on the stipulation in the Promissory Note, weagree with
the reduction thereof but not the ratiocination of the appellate court that the attorney’s fees are in the nature of
liquidated damages or penalty. The interest imposed in the Promissory Note already answers as liquidated damages
for Rivera’s default in paying his obligation. We award attorney’s fees, albeit in a reduced amount, in recognition that
the Spouses Chua were compelled to litigate and incurred expenses to protect their interests. 34 Thus, the award of
₱50,000.00 as attorney’s fees is proper.

For clarity and to obviate confusion, we chart the breakdown of the total amount owed by Rivera to the Spouses Chua:

13
G.R. No. 164349 January 31, 2006
RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI),Petitioner,
vs.
ALFONSO VERCHEZ, GRACE VERCHEZ-INFANTE, MARDONIO INFANTE, ZENAIDA VERCHEZ-CATIBOG, AND
FORTUNATO CATIBOG, Respondents.
On January 21, 1991, Editha Hebron Verchez (Editha) was confined at the Sorsogon Provincial Hospital due to an
ailment. On even date, her daughter Grace Verchez-Infante (Grace) immediately hied to the Sorsogon Branch of the
Radio Communications of the Philippines, Inc. (RCPI) whose services she engaged to send a telegram to her sister
Zenaida Verchez-Catibog (Zenaida) who was residing at 18 Legal St., GSIS Village, Quezon City 1 reading: "Send check
money Mommy hospital." For RCPI’s services, Grace paid P10.502 for which she was issued a receipt.3
As three days after RCPI was engaged to send the telegram to Zenaida no response was received from her, Grace sent
a letter to Zenaida, this time thru JRS Delivery Service, reprimanding her for not sending any financial aid.
Immediately after she received Grace’s letter, Zenaida, along with her husband Fortunato Catibog, left on January 26,
1991 for Sorsogon. On her arrival at Sorsogon, she disclaimed having received any telegram.
In the meantime, Zenaida and her husband, together with her mother Editha left for Quezon City on January 28, 1991
and brought Editha to the Veterans Memorial Hospital in Quezon City where she was confined from January 30, 1991
to March 21, 1991.
The telegram was finally delivered to Zenaida 25 days later or on February 15, 1991. 4 On inquiry from RCPI why it
took that long to deliver it, a messenger of RCPI replied that he had nothing to do with the delivery thereof as it was
another messenger who previously was assigned to deliver the same but the address could not be located, hence, the
telegram was resent on February 2, 1991, and the second messenger finally found the address on February 15, 1991.
Editha’s husband Alfonso Verchez (Verchez), by letter of March 5, 1991, demanded an explanation from the manager
5 employer.17 (Underscoring supplied),
of the Service Quality Control Department of the RCPI, Mrs. Lorna D. Fabian, who replied, by letter of March 13,
1991,6 as follows:
Our investigation on this matter disclosed that subject telegram was duly processed in accordance with our standard
operating procedure. However, delivery was not immediately effected due to the occurrence of circumstances which
were beyond the control and foresight of RCPI. Among others, during the transmission process, the radio link
connecting the points of communication involved encountered radio noise and interferences such that subject
telegram did not initially registered (sic) in the receiving teleprinter machine.
Our internal message monitoring led to the discovery of the above. Thus, a repeat transmission was made and
subsequent delivery was effected. (Underscoring supplied)
Verchez’s lawyer thereupon wrote RCPI’s manager Fabian, by letter of July 23, 1991, requesting for a conference on
7
a specified date and time, but no representative of RCPI showed up at said date and time.
On April 17, 1992, Editha died.
On September 8, 1993, Verchez, along with his daughters Grace and Zenaida and their respective spouses, filed a
complaint against RCPI before the Regional Trial Court (RTC) of Sorsogon for damages. In their complaint, the plaintiffs
alleged that, inter alia, the delay in delivering the telegram contributed to the early demise of the late Editha to their
damage and prejudice,8 for which they prayed for the award of moral and exemplary damages9 and attorney’s fees.10
14
After its motion to dismiss the complaint for improper venue 11 was denied12 by Branch 5 of the RTC of Sorsogon, RCPI
filed its answer, alleging that except with respect to Grace,13 the other plaintiffs had no privity of contract with it; any
delay in the sending of the telegram was due to force majeure, "specifically, but not limited to, radio noise and
interferences which adversely affected the transmission and/or reception of the telegraphic message"; 14 the clause in
the Telegram Transmission Form signed by Grace absolved it from liability for any damage arising from the transmission
other than the refund of telegram tolls;15 it observed due diligence in the selection and supervision of its employees;
and at all events, any cause of action had been barred by laches. 16
The trial court, observing that "although the delayed delivery of the questioned telegram was not apparently the
proximate cause of the death of Editha," ruled out the presence of force majeure. Respecting the clause in the telegram
relied upon by RCPI, the trial court held that it partakes of the nature of a contract of adhesion.
Finding that the nature of RCPI’s business obligated it to dispatch the telegram to the addressee at the earliest possible
time but that it did not in view of the negligence of its employees to repair its radio transmitter and the concomitant
delay in delivering the telegram on time, the trial court, upon the following provisions of the Civil Code, to wit:
Article 2176 – Whoever by act or omission causes damage to another, there being at fault or negligence, is obliged
to pay for the damage done. Such fault or negligence if there is no pre-existing contractual relation between the
parties, is called quasi-delict and is governed by the provisions of this Chapter.
Article 1173 defines the fault of (sic) negligence of the obligor as the "omission of the diligence which is required by
the nature of the obligation and corresponds with the circumstances of the person, of the time, or the place."
In the instant case, the obligation of the defendant to deliver the telegram to the addressee is of an urgent nature.
Its essence is the early delivery of the telegram to the concerned person. Yet, due to the negligence of its employees,
the defendant failed to discharge of its obligation on time making it liable for damages under Article 2176.
The negligence on the part of the employees gives rise to the presumption of negligence on the part of the
rendered judgment against RCPI. Accordingly, it disposed:
WHEREFORE, in the light of the foregoing premises, judgment is hereby rendered in favor of the plaintiffs and against
the defendant, to wit:
Ordering the defendant to pay the plaintiffs the following amount:
1. The amount of One Hundred Thousand (P100,000.00) Pesos as moral damages;
2. The amount of Twenty Thousand (P20,000.00) Pesos as attorney’s fees; and
3. To pay the costs.
On appeal, the Court of Appeals, by Decision of February 27, 2004, 19 affirmed the trial court’s decision.
Hence, RCPI’s present petition for review on certiorari, it raising the following questions: (1) "Is the award of moral
damages proper even if the trial court found that there was no direct connection between the injury and the alleged
negligent acts?"20 and (2) "Are the stipulations in the ‘Telegram Transmission Form,’ in the nature "contracts of
adhesion" (sic)?21
RCPI insists that respondents failed to prove any causal connection between its delay in transmitting the telegram and
Editha’s death.22
RCPI’s stand fails. It bears noting that its liability is anchored on culpa contractual or breach of contract with regard to
Grace, and on tort with regard to her co-plaintiffs-herein-co-respondents.
Article 1170 of the Civil Code provides:
Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof, are liable for damages. (Underscoring supplied)
Passing on this codal provision, this Court explained:
In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance
justify, prima facie, a corresponding right of relief. The law, recognizing the obligatory force of contracts, will not
permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a
contravention of the tenor thereof. A breach upon the contract confers upon the injured party a valid cause for
recovering that which may have been lost or suffered. The remedy serves to preserve the interests of the promissee
that may include his "expectation interest," which is his interest in having the benefit of his bargain by being put
in as good a position as he would have been in had the contract been performed, or his "reliance interest," which
is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as
he would have been in had the contract not been made; or his "restitution interest," which is his interest in having
restored to him any benefit that he has conferred on the other party. Indeed, agreements can accomplish little, either
for their makers or for society, unless they are made the basis for action. The effect of every infraction is to create a
new duty, that is, to make recompense to the one who has been injured by the failure of another to observe his
contractual obligation unless he can show extenuating circumstances, like proof of his exercise of due diligence x
x x or of the attendance of fortuitous event, to excuse him from his ensuing liability.23 (Emphasis and
underscoring supplied)
In the case at bar, RCPI bound itself to deliver the telegram within the shortest possible time. It took 25 days, however,
for RCPI to deliver it.
RCPI invokes force majeure, specifically, the alleged radio noise and interferences which adversely affected the
transmission and/or reception of the telegraphic message. Additionally, its messenger claimed he could not locate the
address of Zenaida and it was only on the third attempt that he was able to deliver the telegram.
For the defense of force majeure to prosper,
x x x it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. An act
of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse
consequences of such a loss. One’s negligence may have concurred with an act of God in producing damage and
injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a
fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a
person’s participation – whether by active intervention, neglect or failure to act – the whole occurrence
is humanized and removed from the rules applicable to acts of God.
xxxx
Article 1174 of the Civil Code states that no person shall be responsible for a fortuitous event that could not be
foreseen or, though foreseen, was inevitable. In other words, there must be an exclusion of human
intervention from the cause of injury or loss.24 (Emphasis and underscoring supplied)
Assuming arguendo that fortuitous circumstances prevented RCPI from delivering the telegram at the soonest possible
time, it should have at least informed Grace of the non-transmission and the non-delivery so that she could have taken
steps to remedy the situation. But it did not. There lies the fault or negligence.
In an earlier case also involving RCPI, this Court held:
15
Considering the public utility of RCPI’s business and its contractual obligation to transmit messages, it should exercise
due diligence to ascertain that messages are delivered to the persons at the given address and should provide a
system whereby in cases of undelivered messages the sender is given notice of non-delivery. Messages sent
by cable or wireless means are usually more important and urgent than those which can wait for the mail.25
People depend on telecommunications companies in times of deep emotional stress or pressing financial
needs. Knowing that messages about the illnesses or deaths of loved ones, births or marriages in a family, important
business transactions, and notices of conferences or meetings as in this case, are coursed through the petitioner and
similar corporations, it is incumbent upon them to exercise a greater amount of care and concern than that shown in
this case. Every reasonable effort to inform senders of the non-delivery of messages should be undertaken.26
RCPI argues, however, against the presence of urgency in the delivery of the telegram, as well as the basis for the
award of moral damages, thus:27
The request to send check as written in the telegraphic text negates the existence of urgency that private
respondents’ allegations that ‘time was of the essence’ imports. A check drawn against a Manila Bank and transmitted
to Sorsogon, Sorsogon will have to be deposited in a bank in Sorsogon and pass thru a minimum clearing period of
5 days before it may be encashed or withdrawn. If the transmittal of the requested check to Sorsogon took 1 day –
private respondents could therefore still wait for 6 days before the same may be withdrawn. Requesting a check that
would take 6 days before it could be withdrawn therefore contradicts plaintiff’s claim of urgency or need.28
At any rate, any sense of urgency of the situation was met when Grace Verchez was able to communicate to Manila
via a letter that she sent to the same addressee in Manila thru JRS.29
As far as the respondent court’s award for moral damages is concerned, the same has no basis whatsoever since
private respondent Alfonso Verchez did not accompany his late wife when the latter went to Manila by bus. He stayed
behind in Sorsogon for almost 1 week before he proceeded to Manila. 30
When pressed on cross-examination, private respondent Alfonso Verchez could not give any plausible reason as to
the reason why he did not accompany his ailing wife to Manila.31
It is also important to consider in resolving private respondents’ claim for moral damages that private respondent
Grace Verchez did not accompany her ailing mother to Manila.32
It is the common reaction of a husband to be at his ailing wife’s side as much as possible. The fact that private
respondent Alfonso Verchez stayed behind in Sorsogon for almost 1 week convincingly demonstrates that he himself
knew that his wife was not in critical condition.33
RCPI’s arguments fail. For it is its breach of contract upon which its liability is, it bears repeating, anchored. Since RCPI
breached its contract, the presumption is that it was at fault or negligent. It, however, failed to rebut this presumption.
For breach of contract then, RCPI is liable to Grace for damages.
And for quasi-delict, RCPI is liable to Grace’s co-respondents following Article 2176 of the Civil Code which provides:
Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called
a quasi-delict and is governed by the provisions of this Chapter. (Underscoring supplied)
RCPI’s liability as an employer could of course be avoided if it could prove that it observed the diligence of a good
father of a family to prevent damage. Article 2180 of the Civil Code so provides:
The obligation imposed by Article 2176 is demandable not only for one’s own acts or omissions, but also for those of
persons for whom one is responsible.
The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their
employees in the service of the branches in which the latter are employed or on the occasion of their functions.
Employers shall be liable for the damages caused by their employees and household helpers acting within the scope
of their assigned tasks, even though the former are not engaged in any business or industry.
xxxx
The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed
all the diligence of a good father of a family to prevent damage. (Underscoring supplied)
RCPI failed, however, to prove that it observed all the diligence of a good father of a family to prevent damage.
Respecting the assailed award of moral damages, a determination of the presence of the following requisites to justify
the award is in order:
x x x firstly, evidence of besmirched reputation or physical, mental or psychological suffering sustained by the
claimant; secondly, a culpable act or omission factually established; thirdly, proof that the wrongful act or omission
of the defendant is the proximate cause of damages sustained by the claimant; and fourthly, that the case is
predicated on any of the instances expressed or envisioned by Article 2219 and Article 2220 of the Civil Code. 34
Respecting the first requisite, evidence of suffering by the plaintiffs-herein respondents was correctly appreciated by
the CA in this wise:
The failure of RCPI to deliver the telegram containing the message of appellees on time, disturbed their filial
tranquillity. Family members blamed each other for failing to respond swiftly to an emergency that involved the life
of the late Mrs. Verchez, who suffered from diabetes.35
As reflected in the foregoing discussions, the second and third requisites are present.
On the fourth requisite, Article 2220 of the Civil Code provides:
Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the
circumstances, such damages are justly due. The same rule applies to breaches of contract where the
defendant acted fraudulently or in bad faith. (Emphasis and underscoring supplied)
After RCPI’s first attempt to deliver the telegram failed, it did not inform Grace of the non-delivery thereof and waited
for 12 days before trying to deliver it again, knowing – as it should know – that time is of the essence in the delivery
of telegrams. When its second long-delayed attempt to deliver the telegram again failed, it, again, waited for another
12 days before making a third attempt. Such nonchalance in performing its urgent obligation indicates gross negligence
amounting to bad faith. The fourth requisite is thus also present.
In applying the above-quoted Article 2220, this Court has awarded moral damages in cases of breach of contract where
the defendant was guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual
obligation.36
As for RCPI’s tort-based liability, Article 2219 of the Civil Code provides:
Moral damages may be recovered in the following and analogous cases:
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. (Emphasis supplied)
16
Article 26 of the Civil Code, in turn, provides:
Every person shall respect the dignity, personality, privacy and peace of mind of his neighbors and other persons.
The following and similar acts, though they may not constitute a criminal offense, shall produce a cause of action for
damages, prevention, and other relief:
(2) Meddling with or disturbing the private life or family relations of another. (Emphasis supplied)
RCPI’s negligence in not promptly performing its obligation undoubtedly disturbed the peace of mind not only of Grace
but also her co-respondents. As observed by the appellate court, it disrupted the "filial tranquillity" among them as
they blamed each other "for failing to respond swiftly to an emergency." The tortious acts and/or omissions complained
of in this case are, therefore, analogous to acts mentioned under Article 26 of the Civil Code, which are among the
instances of quasi-delict when courts may award moral damages under Article 2219 of the Civil Code.
In fine, the award to the plaintiffs-herein respondents of moral damages is in order, as is the award of attorney’s fees,
respondents having been compelled to litigate to protect their rights.
Clutching at straws, RCPI insists that the limited liability clause in the "Telegram Transmission Form" is not a contract
of adhesion. Thus it argues:
Neither can the Telegram Transmission Form be considered a contract of adhesion as held by the respondent court.
The said stipulations were all written in bold letters right in front of the Telegram Transmission Form. As a matter of
fact they were beside the space where the telegram senders write their telegraphic messages. It would have been
different if the stipulations were written at the back for surely there is no way the sender will easily notice them. The
fact that the stipulations were located in a particular space where they can easily be seen, is sufficient notice to any
sender (like Grace Verchez-Infante) where she could manifest her disapproval, leave the RCPI station and avail of
the services of the other telegram operators.37 (Underscoring supplied)
RCPI misunderstands the nature of a contract of adhesion. Neither the readability of the stipulations nor their physical
location in the contract determines whether it is one of adhesion.
A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract, which
the other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the
contract, while the other party merely affixes his signature or his "adhesion" thereto, giving no room for
negotiation and depriving the latter of the opportunity to bargain on equal footing.38 (Emphasis and
underscoring supplied)
While a contract of adhesion is not necessarily void and unenforceable, since it is construed strictly against the party
who drafted it or gave rise to any ambiguity therein, it is stricken down as void and unenforceable or subversive of
public policy when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to
the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing.39
This Court holds that the Court of Appeals’ finding that the parties’ contract is one of adhesion which is void is, given
the facts and circumstances of the case, thus well-taken.
WHEREFORE, the petition is DENIED, and the challenged decision of the Court of Appeals is AFFIRMED.
G.R. No. 185798 January 13, 2014
FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE NETWORK INC., Petitioners,
vs.
SPOUSES CONRADO AND MARIA VICTORIA RONQUILLO, Respondents.
Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules .of Civil Procedure assailing the
Decision1 of the Court of Appeals in CA-G.R. SP No. 100450 which affirmed the Decision of the Office of the President
in O.P. Case No. 06-F-216.
As culled from the records, the facts are as follow:
Petitioner Fil-Estate Properties, Inc. is the owner and developer of the Central Park Place Tower while co-petitioner Fil-
Estate Network, Inc. is its authorized marketing agent. Respondent Spouses Conrado and Maria Victoria Ronquillo
purchased from petitioners an 82-square meter condominium unit at Central Park Place Tower in Mandaluyong City for
a pre-selling contract price of FIVE MILLION ONE HUNDRED SEVENTY-FOUR THOUSAND ONLY (₱5,174,000.00). On 29
August 1997, respondents executed and signed a Reservation Application Agreement wherein they deposited
₱200,000.00 as reservation fee. As agreed upon, respondents paid the full downpayment of ₱1,552,200.00 and had
been paying the ₱63,363.33 monthly amortizations until September 1998.
Upon learning that construction works had stopped, respondents likewise stopped paying their monthly amortization.
Claiming to have paid a total of ₱2,198,949.96 to petitioners, respondents through two (2) successive letters,
demanded a full refund of their payment with interest. When their demands went unheeded, respondents were
constrained to file a Complaint for Refund and Damages before the Housing and Land Use Regulatory Board (HLURB).
Respondents prayed for reimbursement/refund of ₱2,198,949.96 representing the total amortization payments,
₱200,000.00 as and by way of moral damages, attorney’s fees and other litigation expenses.
On 21 October 2000, the HLURB issued an Order of Default against petitioners for failing to file their Answer within the
reglementary period despite service of summons.2
Petitioners filed a motion to lift order of default and attached their position paper attributing the delay in construction
to the 1997 Asian financial crisis. Petitioners denied committing fraud or misrepresentation which could entitle
respondents to an award of moral damages.
On 13 June 2002, the HLURB, through Arbiter Atty. Joselito F. Melchor, rendered judgment ordering petitioners to
jointly and severally pay respondents the following amount:
a) The amount of TWO MILLION ONE HUNDRED NINETY-EIGHT THOUSAND NINE HUNDRED FORTY NINE PESOS &
96/100 (₱2,198,949.96) with interest thereon at twelve percent (12%) per annum to be computed from the time of
the complainants’ demand for refund on October 08, 1998 until fully paid,
b) ONE HUNDRED THOUSAND PESOS (₱100,000.00) as moral damages,
c) FIFTY THOUSAND PESOS (₱50,000.00) as attorney’s fees,
d) The costs of suit, and
e) An administrative fine of TEN THOUSAND PESOS (₱10,000.00) payable to this Office fifteen (15) days upon receipt
of this decision, for violation of Section 20 in relation to Section 38 of PD 957.3
The Arbiter considered petitioners’ failure to develop the condominium project as a substantial breach of their obligation
which entitles respondents to seek for rescission with payment of damages. The Arbiter also stated that mere economic
hardship is not an excuse for contractual and legal delay.
17
Petitioners appealed the Arbiter’s Decision through a petition for review pursuant to Rule XII of the 1996 Rules of
Procedure of HLURB. On 17 February 2005, the Board of Commissioners of the HLURB denied 4 the petition and affirmed
the Arbiter’s Decision. The HLURB reiterated that the depreciation of the peso as a result of the Asian financial crisis is
not a fortuitous event which will exempt petitioners from the performance of their contractual obligation.
Petitioners filed a motion for reconsideration but it was denied5 on 8 May 2006. Thereafter, petitioners filed a Notice of
Appeal with the Office of the President. On 18 April 2007, petitioners’ appeal was dismissed 6 by the Office of the
President for lack of merit. Petitioners moved for a reconsideration but their motion was denied7 on 26 July 2007.
Petitioners sought relief from the Court of Appeals through a petition for review under Rule 43 containing the same
arguments they raised before the HLURB and the Office of the President:
I. THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE HONORABLE HOUSING
AND LAND USE REGULATORY BOARD AND ORDERING PETITIONERS-APPELLANTS TO REFUND RESPONDENTS-
APPELLEES THE SUM OF ₱2,198,949.96 WITH 12% INTEREST FROM 8 OCTOBER 1998 UNTIL FULLY PAID,
CONSIDERING THAT THE COMPLAINT STATES NO CAUSE OF ACTION AGAINST PETITIONERS-APPELLANTS.
II. THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE OFFICE BELOW
ORDERING PETITIONERS-APPELLANTS TO PAY RESPONDENTS-APPELLEES THE SUM OF ₱100,000.00 AS MORAL
DAMAGES AND ₱50,000.00 AS ATTORNEY’S FEES CONSIDERING THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS
THEREFOR.
III. THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE HOUSING AND LAND
USE REGULATORY BOARD ORDERING PETITIONERS-APPELLANTS TO PAY ₱10,000.00 AS ADMINISTRATIVE FINE IN
THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS TO SUPPORT SUCH FINDING.8
On 30 July 2008, the Court of Appeals denied the petition for review for lack of merit. The appellate court echoed the
HLURB Arbiter’s ruling that "a buyer for a condominium/subdivision unit/lot unit which has not been developed in
accordance with the approved condominium/subdivision plan within the time limit for complying with said
developmental requirement may opt for reimbursement under Section 20 in relation to Section 23 of Presidential
Decree (P.D.) 957 x x x."9 The appellate court supported the HLURB Arbiter’s conclusion, which was affirmed by the
HLURB Board of Commission and the Office of the President, that petitioners’ failure to develop the condominium
project is tantamount to a substantial breach which warrants a refund of the total amount paid, including interest. The
appellate court pointed out that petitioners failed to prove that the Asian financial crisis constitutes a fortuitous event
which could excuse them from the performance of their contractual and statutory obligations. The appellate court also
affirmed the award of moral damages in light of petitioners’ unjustified refusal to satisfy respondents’ claim and the
legality of the administrative fine, as provided in Section 20 of Presidential Decree No. 957.
Petitioners sought reconsideration but it was denied in a Resolution10 dated 11 December 2008 by the Court of Appeals.
Aggrieved, petitioners filed the instant petition advancing substantially the same grounds for review:
A. THE HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED IN TOTO THE DECISION OF THE OFFICE OF THE
PRESIDENT WHICH SUSTAINED RESCISSION AND REFUND IN FAVOR OF THE RESPONDENTS DESPITE LACK OF
CAUSE OF ACTION.
B. GRANTING FOR THE SAKE OF ARGUMENT THAT THE PETITIONERS ARE LIABLE UNDER THE PREMISES, THE
HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED THE HUGE AMOUNT OF INTEREST OF TWELVE PERCENT
(12%).
C. THE HONORABLE COURT OF APPEALS LIKEWISE ERRED WHEN IT AFFIRMED IN TOTO THE DECISION OF THE
OFFICE OF THE PRESIDENT INCLUDING THE PAYMENT OF ₱100,000.00 AS MORAL DAMAGES, ₱50,000.00 AS
 ATTORNEY’S FEES AND ₱10,000.00 AS ADMINISTRATIVE FINE IN THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS
TO SUPPORT SUCH CONCLUSIONS.11
Petitioners insist that the complaint states no cause of action because they allegedly have not committed any act of
misrepresentation amounting to bad faith which could entitle respondents to a refund. Petitioners claim that there was
a mere delay in the completion of the project and that they only resorted to "suspension and reformatting as a
testament to their commitment to their buyers." Petitioners attribute the delay to the 1997 Asian financial crisis that
befell the real estate industry. Invoking Article 1174 of the New Civil Code, petitioners maintain that they cannot be
held liable for a fortuitous event.
Petitioners contest the payment of a huge amount of interest on account of suspension of development on a project.
They liken their situation to a bank which this Court, in Overseas Bank v. Court of Appeals, 12 adjudged as not liable to
pay interest on deposits during the period that its operations are ordered suspended by the Monetary Board of the
Central Bank.
Lastly, petitioners aver that they should not be ordered to pay moral damages because they never intended to cause
delay, and again blamed the Asian economic crisis as the direct, proximate and only cause of their failure to complete
the project. Petitioners submit that moral damages should not be awarded unless so stipulated except under the
instances enumerated in Article 2208 of the New Civil Code. Lastly, petitioners refuse to pay the administrative fine
because the delay in the project was caused not by their own deceptive intent to defraud their buyers, but due to
unforeseen circumstances beyond their control.
Three issues are presented for our resolution: 1) whether or not the Asian financial crisis constitute a fortuitous event
which would justify delay by petitioners in the performance of their contractual obligation; 2) assuming that petitioners
are liable, whether or not 12% interest was correctly imposed on the judgment award, and 3) whether the award of
moral damages, attorney’s fees and administrative fine was proper.
It is apparent that these issues were repeatedly raised by petitioners in all the legal fora. The rulings were consistent
that first, the Asian financial crisis is not a fortuitous event that would excuse petitioners from performing their
contractual obligation; second, as a result of the breach committed by petitioners, respondents are entitled to rescind
the contract and to be refunded the amount of amortizations paid including interest and damages; and third, petitioners
are likewise obligated to pay attorney’s fees and the administrative fine.
This petition did not present any justification for us to deviate from the rulings of the HLURB, the Office of the President
and the Court of Appeals.
Indeed, the non-performance of petitioners’ obligation entitles respondents to rescission under Article 1191 of the New
Civil Code which states:
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with payment of damages
in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become
impossible.
More in point is Section 23 of Presidential Decree No. 957, the rule governing the sale of condominiums, which provides:
Section 23. Non-Forfeiture of Payments.1âwphi1 No installment payment made by a buyer in a subdivision or
condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer
when the buyer, after due notice to the owner or developer, desists from further payment due to the failure of the
owner or developer to develop the subdivision or condominium project according to the approved plans and within
18
the time limit for complying with the same. Such buyer may, at his option, be reimbursed the total amount paid
including amortization interests but excluding delinquency interests, with interest thereon at the legal rate. (Emphasis
supplied).
Conformably with these provisions of law, respondents are entitled to rescind the contract and demand reimbursement
for the payments they had made to petitioners.
Notably, the issues had already been settled by the Court in the case of Fil-Estate Properties, Inc. v. Spouses
Go13 promulgated on 17 August 2007, where the Court stated that the Asian financial crisis is not an instance of caso
fortuito. Bearing the same factual milieu as the instant case, G.R. No. 165164 involves the same company, Fil-Estate,
albeit about a different condominium property. The company likewise reneged on its obligation to respondents therein
by failing to develop the condominium project despite substantial payment of the contract price. Fil-Estate advanced
the same argument that the 1997 Asian financial crisis is a fortuitous event which justifies the delay of the construction
project. First off, the Court classified the issue as a question of fact which may not be raised in a petition for review
considering that there was no variance in the factual findings of the HLURB, the Office of the President and the Court
of Appeals. Second, the Court cited the previous rulings of Asian Construction and Development Corporation v.
Philippine Commercial International Bank14 and Mondragon Leisure and Resorts Corporation v. Court of
Appeals15 holding that the 1997 Asian financial crisis did not constitute a valid justification to renege on obligations.
The Court expounded:
Also, we cannot generalize that the Asian financial crisis in 1997 was unforeseeable and beyond the control of a
business corporation. It is unfortunate that petitioner apparently met with considerable difficulty e.g. increase cost
of materials and labor, even before the scheduled commencement of its real estate project as early as 1995. However,
a real estate enterprise engaged in the pre-selling of condominium units is concededly a master in projections on
commodities and currency movements and business risks. The fluctuating movement of the Philippine peso in the
foreign exchange market is an everyday occurrence, and fluctuations in currency exchange rates happen everyday,
thus, not an instance of caso fortuito.16
The aforementioned decision becomes a precedent to future cases in which the facts are substantially the same, as in
this case. The principle of stare decisis, which means adherence to judicial precedents, applies.
In said case, the Court ordered the refund of the total amortizations paid by respondents plus 6% legal interest
computed from the date of demand. The Court also awarded attorney’s fees. We follow that ruling in the case before
us.
The resulting modification of the award of legal interest is, also, in line with our recent ruling in Nacar v. Gallery
Frames,17 embodying the amendment introduced by the Bangko Sentral ng Pilipinas Monetary Board in BSP-MB Circular
No. 799 which pegged the interest rate at 6% regardless of the source of obligation.
We likewise affirm the award of attorney’s fees because respondents were forced to litigate for 14 years and incur
expenses to protect their rights and interest by reason of the unjustified act on the part of petitioners. 18 The imposition
of ₱10,000.00 administrative fine is correct pursuant to Section 38 of Presidential Decree No. 957 which reads:
Section 38. Administrative Fines. The Authority may prescribe and impose fines not exceeding ten thousand pesos for
violations of the provisions of this Decree or of any rule or regulation thereunder. Fines shall be payable to the Authority
and enforceable through writs of execution in accordance with the provisions of the Rules of Court.
Finally, we sustain the award of moral damages. In order that moral damages may be awarded in breach of contract
cases, the defendant must have acted in bad faith, must be found guilty of gross negligence amounting to bad faith,
or must have acted in wanton disregard of contractual obligations. 19 The Arbiter found petitioners to have acted in bad
faith when they breached their contract, when they failed to address respondents’ grievances and when they adamantly
refused to refund respondents' payment.
In fine, we find no reversible error on the merits in the impugned Court of Appeals' Decision and Resolution.
WHEREFORE, the petition is PARTLY GRANTED. The appealed Decision is AFFIRMED with the MODIFICATION that the
legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the time of respondents' demand for
refund on 8 October 1998.
19
G.R. No. 210215, December 09, 2015
ROGELIO S. NOLASCO, NICANORA N. GUEVARA, LEONARDA N. ELPEDES, HEIRS OF ARNULFO S. NOLASCO,
AND REMEDIOS M. NOLASCO, REPRESENTED BY ELENITA M. NOLASCO Petitioners, v. CELERINO S. CUERPO,
JOSELITO ENCABO, JOSEPH ASCUTIA, AND DOMILO LUCENARIO, Respondents.
Assailed in this petition for review on certiorari1 are the Decision2 dated June 17, 2013 and the Resolution3 dated
November 19, 2013 of the Court of Appeals (CA) in CA-G.R. CV No. 95353, which affirmed in toto the Decision4 dated
March 1, 2010 of the Regional Trial Court of Quezon City, Branch 81 (RTC) in Civil Case No. Q-08-63860 ordering the
rescission of the Contract to Sell executed by herein parties and the return of the amounts already paid by respondents
Celerino S. Cuerpo, Joselito Encabo, Joseph Ascutia, and Domilo Lucenario (respondents) to petitioners Rogelio S.
Nolasco, Nicanora N. Guevara, Leonarda N. Elpedes, Heirs of Arnulfo S. Nolasco, and Remedios M. Nolasco, represented
by Elenita M. Nolasco (petitioners), as well as the remaining post-dated checks issued by respondent Celerino S. Cuerpo
representing the remaining monthly amortizations, all in connection with the said contract.
The Facts
On July 22, 2008, petitioners and respondents entered into a Contract to Sell5 (subject contract) over a 165,775-
square meter parcel of land located in Barangay San Isidro, Rodriguez, Rizal covered by Original Certificate of Title No.
152 (subject land).6 The subject contract provides, inter alia, that: (a) the consideration for the sale is P33,155,000.00
payable as follows: down payment in the amount of P11,604,250.00 inclusive of the amount of P2,000,000.00
previously paid by respondents as earnest money/reservation fee, and the remaining balance of P21,550,750.00
payable in 36 monthly installments, each in the amount of P598,632.00 through post-dated checks; (b) in case any of
the checks is dishonored, the amounts already paid shall be forfeited in petitioners' favor, and the latter shall be entitled
to cancel the subject contract without judicial recourse in addition to other appropriate legal action; (c) respondents
are not entitled to possess the subject land until full payment of the purchase price; (d) petitioners shall transfer the
title over the subject land from a certain Edilberta N. Santos to petitioners' names, and, should they fail to do so,
respondents may cause the said transfer and charge the costs incurred against the monthly amortizations; and (e)
upon full payment of the purchase price, petitioners shall transfer title over the subject land to respondents.7 However,
respondents sent petitioners a letter8 dated November 7, 2008 seeking to rescind the subject contract on the ground
of financial difficulties in complying with the same. They also sought the return of the amount of P12,202,882.00 they
had paid to petitioners.9 As their letter went unheeded, respondents filed the instant complaint10 for rescission before
the RTC.11
In their defense,12 petitioners countered that respondents' act is a unilateral cancellation of the subject contract as
the former did not consent to it. Moreover, the ground of financial difficulties is not among the grounds provided by
law to effect a valid rescission.13
In view of petitioners' failure to file the required pre-trial brief, they were declared "as in default" and, consequently,
respondents were allowed to present their evidence ex-parte.14
The RTC Ruling
In a Decision15 dated March 1, 2010, the RTC ruled in favor of respondents and, accordingly, ordered: (a) the rescission
of the subject contract; and (b) the return of the amounts already paid by respondents to petitioners, as well as the
remaining post-dated checks issued by respondent Celerino S. Cuerpo representing the remaining monthly
amortizations.16
It found petitioners to have substantially breached paragraph 7 of the subject contract which states that "[t]he
[petitioners] shall, within ninety (90) days from the signing of [the subject contract] cause the completion of the
transfer of registration of title of the property subject of [the said contract], from Edilberta N. Santos to their names,
at [petitioners'] own expense."17 As such, respondents were entitled to rescission under Article 1191 of the Civil
Code.18
Dissatisfied, petitioners appealed19 to the CA.
The CA Ruling
In a Decision20 dated June 17, 2013, the CA affirmed the RTC ruling. It agreed with the RTC that petitioners
substantially breached paragraph 7 of the subject contract when they did not effect the transfer of the subject land
from Edilberta N. Santos to petitioners' names within ninety (90) days from the execution of said contract, thus,
entitling respondents to rescind the same. In this relation, the CA held that under the present circumstances, the
forfeiture of the payments already made by respondents to petitioners is clearly improper and unwarranted.21
Aggrieved, petitioners moved for reconsideration,22 which was denied in a Resolution23 dated November 19, 2013;
hence, this petition.
The Issue Before the Court
The core issue for the Court's resolution is whether or not the CA correctly affirmed the rescission of the subject contract
and the return of the amounts already paid by respondents to petitioners, as well as the remaining post-dated checks
issued by respondent Celerino S. Cuerpo representing the remaining monthly amortizations.
The Court's Ruling
The petition is partially meritorious.
In reciprocal obligations, either party may rescind - or more appropriately, resolve - the contract upon the other party's
substantial breach of the obligation/s he had assumed thereunder.24 This is expressly provided for in Article 1191 of
the Civil Code which states:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance
with Articles 1385 and 1388 and the Mortgage Law.
"More accurately referred to as resolution, the right of rescission under Article 1191 is predicated on a breach of faith
that violates the reciprocity between the parties to the contract. This retaliatory remedy is given to the contracting
party who suffers the injurious breach on the premise that it is 'unjust that a party be held bound to fulfill his promises
when the other violates his.'"25 Note that the rescission (or resolution) of a contract will not be permitted for a slight
or casual breach, but only for such substantial and fundamental violations as would defeat the very object of the parties
20
in making the agreement.26 Ultimately, the question of whether a breach of contract is substantial depends upon the
attending circumstances.27
In the instant case, both the RTC and the CA held that petitioners were in substantial breach of paragraph 7 of the
subject contract as they did not cause the transfer of the property to their names from one Edilberta N. Santos within
90 days from the execution of said contract.28
The courts a quo are mistaken.
Paragraph 7 of the subject contract state in full:
7. [Petitioners] shall, within ninety (90) days from the signing of [the subject contract], cause the completion of the
transfer of registration of title of the property subject of [the subject contract], from Edilberta N. Santos to their
names, at [petitioners'] own expense. Failure on the part of [petitioners] to undertake the foregoing within the
prescribed period shall automatically authorize [respondents] to undertake the same in behalf of [petitioners] and
charge the costs incidental to the monthly amortizations upon due date. (Emphasis and underscoring supplied)
A plain reading of paragraph 7 of the subject contract reveals that while the RTC and the CA were indeed correct in
finding that petitioners failed to perform their obligation to effect the transfer of the title to the subject land from one
Edilberta N. Santos to their names within the prescribed period, said courts erred in concluding that such failure
constituted a substantial breach that would entitle respondents to rescind (or resolve) the subject contract. To reiterate,
for a contracting party to be entitled to rescission (or resolution) in accordance with Article 1191 of the Civil Code, the
other contracting party must be in substantial breach of the terms and conditions of their contract. A substantial breach
of a contract, unlike slight and casual breaches thereof, is a fundamental breach that defeats the object of the parties
in entering into an agreement.29 Here, it cannot be said that petitioners' failure to undertake their obligation under
paragraph 7 defeats the object of the parties in entering into the subject contract, considering that the same paragraph
provides respondents contractual recourse in the event of petitioners' non-performance of the aforesaid obligation, that
is, to cause such transfer themselves in behalf and at the expense of petitioners.
Indubitably, there is no substantial breach of paragraph 7 on the part of petitioners that would necessitate a rescission
(or resolution) of the subject contract. As such, a reversal of the rulings of the RTC and the CA is in order.
The foregoing notwithstanding, the Court cannot grant petitioners' prayer in the instant petition to order the
cancellation of the subject contract and the forfeiture of the amounts already paid by respondents on account of the
latter's failure to pay its monthly amortizations,30 simply because in their Answer with Compulsory Counterclaim and
Motion for Summary Judgment31 filed before the RTC, petitioners neither prayed for this specific relief nor argued that
they were entitled to the same. Worse, petitioners were declared "as in default" for failure to file the required pre-trial
brief and, thus, failed to present any evidence in support of their defense.32 It is settled that "[w]hen a party
deliberately adopts a certain theory and the case is decided upon that theory in the court below, he will not be permitted
to change the same on appeal, because to permit him to do so would be unfair to the adverse party."33 The Court's
pronouncement in Peña v. Spouses Tolentino34 is instructive on this matter, to wit:
Indeed, the settled rule in this jurisdiction, according to Mon v. Court of Appeals, is that a party cannot change his
theory of the case or his cause of action on appeal. This rule affirms that "courts of justice have no jurisdiction or power
to decide a question not in issue." Thus, a judgment that goes beyond the issues and purports to adjudicate something
on which the court did not hear the parties is not only irregular but also extrajudicial and invalid. The legal theory
under which the controversy was heard and decided in the trial court should be the same theory under which the review
on appeal is conducted. Otherwise, prejudice will result to the adverse party. We stress that points of law, theories,
issues, and arguments not adequately brought to the attention of the lower court will not be ordinarily considered by
a reviewing court, inasmuch as they cannot be raised for the first time on appeal. This would be offensive to the basic G.R. No. 190080 June 11, 2014
rules of fair play, justice, and due process.35 (Emphasis and underscoring supplied)
GOLDEN VALLEY EXPLORATION, INC., Petitioner,
WHEREFORE, the petition is PARTIALLY GRANTED. Accordingly, the Decision dated June 17, 2013 and the Resolution vs.
dated November 19, 2013 of the Court of Appeals in CA-G.R. CV No. 95353 are hereby REVERSED and SET ASIDE. PINKIAN MINING COMPANY and COPPER VALLEY, INC., Respondents.
The Contract to Sell executed by the parties on July 22, 2008 remains VALID and SUBSISTING.
Assailed in this petition for review on certiorari1 are the Decision2 dated July 23, 2009 and the Resolution3 dated
October 23, 2009 of the Court of Appeals (CA) in CA-G.R. CV. No. 90682 which reversed the Decision4 dated August
18, 2006 of the Regional Trial Court of Makati City, Branch 145 (RTC) in Civil Case No. 01-324 and, consequently,
affirmed the validity of the rescission of the Operating Agreement between petitioner Golden Valley Exploration, Inc.
(GVEI) and respondent Pinkian Mining Company (PMC) covering various mining claims in Kayapa, Nueva Vizcaya, as
well as the Memorandum of Agreement between PMC and respondent Copper Valley, Inc. (CVI).

The Facts

PMC is the owner of 81 mining claims located in Kayapa, Nueva Vizcaya, 15 of which were covered by Mining Lease
Contract (MLC) No. MRD-56,5 while the remaining 66 had pending applications for lease. 6 On October 30, 1987, PMC
entered into an Operating Agreement7 (OA) with GVEI, granting the latter "full, exclusive and irrevocable possession,
use, occupancy , and control over the [mining claims], and every matter pertaining to the examination, exploration,
development and mining of the [mining claims] and the processing and marketing of the products x x x ," 8 for a period
of 25 years.9

In a Letter10 dated June 8, 1999, PMC extra-judicially rescinded the OA upon GVEI’s violation of Section 5.01,11 Article
V thereof. Cited as further justification for its action were reasons such as: (a) violation of Section 2.03, Article II of
the OA, or the failure of GVEI to advance the actual cost for the perfection of the mining claims or for the acquisition
of mining rights, cost of lease applications, lease surveys and legal expenses incidental thereto; (b) GVEI’s non-
reimbursement of the expenses incurred by PMC General Manager Benjamin Saguid in connection with the visit of a
financier to the mineral property in 1996; (c) its non-remittance of the US$300,000.00 received from Excelsior
Resources, Ltd.; (d) its nondisclosure of contracts entered into with other mining companies with respect to the mining
claims; (e) its being a mere "promoter/broker" of PMC’s mining claims instead of being the operator thereof; and (f)
its nonperformance of the necessary works on the mining claims.12

GVEI contested PMC’s extra-judicial rescission of the OA through a Letter dated December 7, 1999, averring therein
that its obligation to pay royalties to PMC arises only when the mining claims are placed in commercial production
which condition has not yet taken place. It also reminded PMC of its prior payment of the amount of ₱185,000.00 as
future royalties in exchange for PMC’s express waiver of any breach or default on the part of GVEI.13

PMC no longer responded to GVEI’s letter. Instead, it entered into a Memorandum of Agreement dated May 2, 2000
(MOA) with CVI, whereby the latter was granted the right to "enter, possess, occupy and control the mining claims"
and "to explore and develop the mining claims, mine or extract the ores, mill, process and beneficiate and/or dispose
the mineral products in any method or process," among others, for a period of 25 years. 14

Due to the foregoing, GVEI filed a Complaint15 for Specific Performance, Annulment of Contract and Damages against
PMC and CVI before the RTC, docketed as Civil Case No. 01-324.

The RTC Ruling

21
On August 18, 2006, the RTC rendered a Decision16 in favor of GVEI, holding that since the mining claims have not
been placed in commercial production, there is no demandable obligation yet for GVEI to pay royalties to PMC. It further
declared that no fault or negligence may be attributed to GVEI for the delay in the commercial production of the mining
claims because the non-issuance of the requisite Mineral Production Sharing Agreement (MPSA) and other government
permits, licenses, and consent were all affected by factors beyond GVEI’s control. 17 The RTC, thus, declared the
rescission of the OA void and the execution of the MOA between PMC and CVI without force and effect. In this relation,
it ordered PMC to comply with the terms and conditions of the OA until the expiration of its period.18
At odds with the RTC’s ruling, PMC elevated the case on appeal to the CA.
The CA Ruling
In a Decision19 dated July 23, 2009, the CA reversed the RTC ruling, finding that while the OA gives PMC the right to
rescind only on the ground of (GVEI’s) failure to pay the stipulated royalties, Article 1191 of the Civil Code allows PMC
the right to rescind the agreement based on a breach of any of its provisions. 20 It further held that the inaction of GVEI
for a period of more than seven (7) years to operate the areas that were already covered by a perfected mining lease
contract and to acquire the necessary permits and licenses amounted to a substantial breach of the OA, the very
purpose of which was the mining and commercial distribution of derivative products that may be recovered from the
mining property.21 For the foregoing reasons, the CA upheld the validity of PMC’s rescission of the OA and its
subsequent execution of the MOA with CVI.22
Dissatisfied with the CA’s ruling, GVEI filed a motion for reconsideration which was, however, denied by the CA in a
Resolution23 dated October 23, 2009, hence, this petition.
The Issue Before the Court
The central issue for the Court’s resolution is whether or not there was a valid rescission of the OA.
The Court’s Ruling
The Court resolves the issue in the affirmative.
In reciprocal obligations, either party may rescind the contract upon the other’s substantial breach of the obligation/s
he had assumed thereunder. The basis therefor is Article 1191 of the Civil Code which states as follows:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance
with Articles 1385 and 1388 and the Mortgage Law.
More accurately referred to as resolution, the right of rescission under Article 1191 is predicated on a breach of faith
that violates the reciprocity between parties to the contract.24 This retaliatory remedy is given to the contracting party
who suffers the injurious breach on the premise that it is "unjust that a party be held bound to fulfill his promises when
the other violates his."25
22
As a general rule, the power to rescind an obligation must be invoked judicially and cannot be exercised solely on a
party’s own judgment that the other has committed a breach of the obligation.26 This is so because rescission of a
contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental violations as
would defeat the very object of the parties in making the agreement.27 As a well-established exception, however, an
injured party need not resort to court action in order to rescind a contract when the contract itself provides that it may
be revoked or cancelled upon violation of its terms and conditions. 28 As elucidated in Froilan v. Pan Oriental Shipping
Co.,29 "there is x x x nothing in the law that prohibits the parties from entering into agreement that violation of the
terms of the contract would cause cancellation thereof, even without court intervention."30 Similarly, in Dela Rama
Steamship Co., Inc. v. Tan,31 it was held that judicial permission to rescind an obligation is not necessary if a contract
contains a special provision granting the power of cancellation to a party. 32
With this in mind, the Court therefore affirms the correctness of the CA’s Decision upholding PMC’s unilateral rescission
of the OA due to GVEI’s non-payment of royalties considering the parties’ express stipulation in the OA that said
agreement may be cancelled on such ground. This is found in Section 8.01, Article VIII 33 in relation to Section 5.01,
Article V34 of the OA which provides:
ARTICLE VIII: CANCELLATION/TERMINATION OF AGREEMENT
8.01 This Agreement may be cancelled or terminated prior to the expiration of the period, original or renewal
mentioned in the next preceding Section only in either of the following ways:
a. By written advance notice of sixty (60) days from OPERATOR to PINKIAN with or without cause by registered
mail or personal delivery of the notice to PINKIAN.
b. By written notice from PINKIAN by registered or personal deliver of the notice to OPERATOR based on the
failure to OPERATOR to make any payments determined to be due PINKIAN under Section 5.01 hereof after
written demand for payment has been made on OPERATOR: Provided that OPERATOR shall have a grace period
of ninety (90) days from receipt of such written demand within which to make the said payments to PINKIAN.
ARTICLE V: ROYALTIES
5.01 Should the PROPERTIES be placed in commercial production the PINKIAN shall be entitled to a Royalty
computed as follows:
(a) For gold – 3.0 percent of net realizable value of gold
(b) For copper and others – 2.0 percent of net realizable value
"Net REALIZABLE Value" is gross value less the sum of the following:
(1) marketing expenses including freight and insurance;
(2) all smelter charges and deductions;
(3) royalty payments to the government;
(4) ad valorem and export taxes, if any, paid to the government.
The aforesaid royalties shall be paid to PINKIAN within five (5) days after receipt of the smelter or refinery returns.
(Emphases and underscoring supplied)
By expressly stipulating in the OA that GVEI’s non-payment of royalties would give PMC sufficient cause to cancel or
rescind the OA, the parties clearly had considered such violation to be a substantial breach of their agreement. Thus,
in view of the above-stated jurisprudence on the matter, PMC’s extra-judicial rescission of the OA based on the said
ground was valid.
In this relation, the Court finds it apt to clarify that the following defenses raised by GVEI in its petition would not impel
a different conclusion:
 First, GVEI cannot excuse its non-payment of royalties on the argument that no commercial mining was yet in place.
This is precisely because the obligation to develop the mining areas and put them in commercial operation also
belonged to GVEI as it expressly undertook "to explore, develop, and equip the Claims to mine and beneficiate the
ore thereof by any method or process"35 and "to enter into contract, agreement, assignments, conveyances and
understandings of any kind whatsoever with reference to the exploration, development, equipping and operation of
the Claims, and the mining and beneficiation of the ore derived therefrom, and marketing the resulting marketable
products."36
Records reveal that when the OA was signed on October 30, 1987, 15 mining claims were already covered by a
perfected mining lease contract, i.e., MLC No. MRD-56, granting to the holder thereof "the right to extract all mineral
deposits found on or underneath the surface of his mining claims x x x; to remove, process and otherwise utilize the
mineral deposits for his own benefit."37 This meant that GVEI could have immediately extracted mineral deposits
from the covered mineral land and carried out commercial mining operations from the very start. However, despite
earlier demands made by PMC, no meaningful steps were taken by GVEI towards the commercial production of the
15 perfected mining claims and the beneficial exploration of those remaining. Consequently, seven years into the life
of the OA, no royalties were paid to PMC. Compounding its breach, GVEI not only failed to pay royalties to PMC but
also did not carry out its obligation to conduct operations on and/or commercialize the mining claims already covered
by MLC No. MRD-56. Truth be told, GVEI’s non-performance of the latter obligation under the OA actually made the
payment of royalties to PMC virtually impossible. Hence, GVEI cannot blame anyone but itself for its breach of the
OA, which, in turn, gave PMC the right to unilaterally rescind the same.
Second, neither can GVEI successfully oppose PMC’s rescission of the OA on the argument that the ground to rescind
the OA was only limited to its non-payment of royalties precisely because said ground was actually among the reasons
for PMC’s rescission thereof. Considering the stipulations above-cited, the ground for non-payment of royalties was
in itself sufficient for PMC to extra-judicially rescind the OA.
In any event, even discounting the ground of non-payment of royalties, PMC still had the right to rescind the OA
based on the other grounds it had invoked therefor, namely, (a) violation of Section 2.03, Article II of the OA, or the
failure of GVEI to advance the actual cost for the perfection of the mining claims or for the acquisition of mining
rights, cost of lease applications, lease surveys and legal expenses incidental thereto, (b) GVEI’s non-reimbursement
of the expenses incurred by PMC General Manager Benjamin Saguid in connection with the visit of a financier to the
mineral property in 1996, (c) its non-remittance of the US$300,000.00 received from Excelsior Resources, Ltd., (d)
its non-disclosure of contracts entered into with other mining companies with respect to the mining claims, (e) its
being a mere "promoter/broker" of PMC’s mining claims instead of being the operator thereof, and (f) its non-
performance of the necessary works on the mining claims, albeit the said grounds should have been invoked judicially
since the court would still need to determine if the same would constitute substantial breach and not merely a slight
or casual breach of the contract. While Section 8.01, Article VIII of the OA as above-cited appears to expressly restrict
the availability of an extra-judicial rescission only to the grounds stated thereunder, the Court finds that the said
stipulation does not negate PMC’s implied statutory right to judicially rescind the contract for other unspecified acts
that may actually amount to a substantial breach of the contract. This is based on Article 1191 of the Civil Code (also
above-cited) which pertinently provides that the "power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him" and that "[t]he court shall decree the
rescission claimed, unless there be just cause authorizing the fixing of a period."
While it remains apparent that PMC had not judicially invoked the other grounds to rescind in this case, the only
recognizable effect, however, is with respect to the reckoning point as to when the contract would be formally regarded
as rescinded. Where parties agree to a stipulation allowing extra-judicial rescission, no judicial decree is necessary for
rescission to take place; the extra-judicial rescission immediately releases the party from its obligation under the
contract, subject only to court reversal if found improper.1âwphi1 On the other hand, without a stipulation allowing
23
extra-judicial rescission, it is the judicial decree that rescinds, and not the will of the rescinding party. This may be
gathered from previous Court rulings on the matter.
For instance, in Ocejo, Perez & Co. v. International Banking Corporation, 38 where the seller, without having reserved
title to the thing sold, sought to re-possess the subject matter of the sale through an action for replevin after the buyer
failed to pay its purchase price, the Court ruled that the action of replevin (which operates on the assumption that the
plaintiff is the owner of the thing subject of the suit) "will not lie upon the theory that the rescission has already taken
place and that the seller has recovered title to the thing sold." It held that the title which had already passed by delivery
to the buyer is not ipso facto re-vested in the seller upon the latter’s own determination to rescind the sale because it
is the judgment of the court that produces the rescission.
On the other hand, in De Luna v. Abrigo39 (De Luna), the Court upheld the validity of a stipulation providing for the
automatic reversion of donated property to the donor upon non-compliance of certain conditions therefor as the same
was akin to an agreement granting a party the right to extra-judicially rescind the contract in case of breach. The Court
ruled, in effect, that a subsequent court judgment does not rescind the contract but merely declares the fact that the
same has been rescinded, viz.:
[J]udicial intervention is necessary not for purposes of obtaining a judicial declaration rescinding a contract already
deemed rescinded by virtue of an agreement providing for rescission even without judicial intervention, but in order
to determine whether or not the rescission was proper.40 (Emphases and underscoring supplied)
A similar agreement in Roman Catholic Archbishop of Manila v. CA 41 allowing the ipso facto reversion of the donated
property upon noncompliance with the conditions was likewise upheld, with the Court reiterating De Luna and declaring
in unmistakable terms that:42
Where [the propriety of the automatic rescission] is sustained, the decision of the court will be merely declaratory of
the revocation, but it is not in itself the revocatory act. (Emphasis and underscoring supplied)
This notwithstanding, jurisprudence still indicates that an extra-judicial rescission based on grounds not specified in
the contract would not preclude a party to treat the same as rescinded. The rescinding party, however, by such course
of action, subjects himself to the risk of being held liable for damages when the extra-judicial rescission is questioned
by the opposing party in court. This was made clear in the case of U.P. v. De Los Angeles,43 wherein the Court held as
follows:
Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of
infractions by the other contracting party must be made known to the other and is always provisional, being ever
subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to
resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing,
decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in
the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly,
without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding
court that will conclusively and finally settle whether the action taken was or was not correct in law. x x
x.44 (Emphases and underscoring supplied)
The pronouncement, which was also reiterated in the case of Angeles v. Calasanz, 45 sought to explain various rulings
that continued to require judicial confirmation even in cases when the rescinding party has a proven contractual right
to extra-judicially rescind the contract. The observation then was mainly on the practical effect of a stipulation allowing
extra-judicial rescission being merely "to transfer to the defaulter the initiative on instituting suit, instead of the
rescinder."46
Proceeding from the foregoing, the Court has determined that the other grounds raised by PMC in its Letter dated June
8, 1999 to GVEI (the existence of which had not been convincingly disputed herein) amounts to the latter's substantial
breach of the OA. To the Court's mind, said infractions, when taken together, ultimately resulted in GVEI's failure to
faithfully perform its primordial obligation under the OA to explore and develop PMC's mining claims as well as to put
the same into commercial operation. Accordingly, PMC's rescission of the OA on the foregoing grounds, in addition to
the ground of non-payment of royalties, is equally valid.
Finally, the Court cannot lend credence to GVEI's contention that when PMC entered into an agreement with CVI
covering the mining claims, it was committing a violation of the terms and conditions of the OA. As above-explained,
the invocation of a stipulation allowing extra-judicial rescission effectively puts an end to the contract and, thus,
releases the parties from the obligations thereunder, notwithstanding the lack of a judicial decree for the purpose. In
the case at bar, PMC, through its Letter dated June 8, 1999 to GVEI, invoked Section 8.01, Article VIII in relation to
Section 5.01, Article V of the OA which allows it to extra-judicially rescind the contract for GVEI's non-payment of
royalties. Thus, at that point in time, PMC had effectively rescinded the OA and was then considered to have been
released from its legal effects. Accordingly, there stood no legal impediment so as to hinder PMC from entering into a
contract with CVI covering the same mining claims subject of this case.
In fine, the Court denies the instant petition and affirms the assailed CA Decision and Resolution. WHEREFORE, the
petition is DENIED. The Decision dated July 23, 2009 and the Resolution dated October 23, 2009 of the Court of Appeals
in CA-G.R. CV. No. 90682 are hereby AFFIRMED.
24
G.R. No. 198849
CAMP JOHN DEVELOPMENT CORPORATION, Petitioner
vs.
CHARTER CHEMICAL AND COATING CORPORATION, Respondent
Rescission under Article 1191 of the Civil Code is the proper remedy when a party breaches a reciprocal obligation.
Because each case has its own distinct circumstances, this Court's power to fix a period of an obligation under Article
1197 is discretionary and should be exercised only if there is just cause.
This resolves a Petition for Review on Certiorari1 assailing the May 13, 2011 Decision2 and September 30, 2011
Resolution3 of the Court of Appeals in CA-G.R. SP No. 108335. The Court of Appeals affirmed the March 30, 2009 Final
Award4 in CIAC Case No. 19-2008 issued by the Construction Industry Arbitration Commission, which found that
Charter Chemical and Coating Corporation (Charter Chemical) is entitled to the payment of the monetary equivalent
of two (2) units in Camp John Hay Suites in the total amount of ₱5,900,000.00 and attorney's fees in the amount of
₱590,000.00.5
Camp John Hay Development Corporation (Camp John Hay Development) is the investment arm of a consortium
engaged in the construction of the Camp John Hay Manor in Baguio City.6
In January 2001, Camp John Hay Development entered into a Contractor's Agreement7 with Charter Chemical, the
company awarded to complete the interior and exterior painting works of unit 2E of the Camp John Hay Manor for the
contract price of ₱15,500,000.00. This was inclusive of the price of two (2)-studio type units at Camp John Hay Suites,
the total amount of which would be based on the units chosen by Charter Chemical. 8
Although the Contractor's Agreement contained no date of the units' turnover, it allowed Charter Chemical to choose
the units for offsetting under an offsetting scheme:
1. Compensation:
b. Off-setting against Two (2) Units - Studio Type at Suite 2A. Total amount shall be based on the final unit[s]
chosen by the Contractor.9
Charter Chemical chose Units 102 and 104 studio type in the second phase of Camp John Hay Suites. 10
At the time the Contractor's Agreement was signed in 2001, the actual construction of the Camp John Hay Suites had
not yet commenced.11
Later on, the contract price was reduced to P13,239,734.16, for which Camp John Hay Development paid
₱7,339,734.16. The balance of ₱5,900,000.00 was ought to be settled by offsetting the price of the two (2) studio
units.12
In 2003, Charter Chemical completed the painting works, after which Camp John Hay Development issued a Final
Inspection and Acceptance Certificate belatedly on May 30, 2005. Charter Chemical demanded the execution of the
deed of sale and delivery of the titles of the two (2) units in September 2004, with a follow-up in April 2005.13 In June
2005, Camp John Hay Development and Charter Chemical executed contracts to sell. The uniform contracts state in
part:
[P]ossession of the Unit shall be delivered by Seller to Buyer within a reasonable period of time from the date of
completion of the Unit either by (a) serving written Notice of Completion to the Buyer or (b) by delivering to the Buyer
the Limited Warranty Deed covering the Unit. The delivery of the Notice of Completion or the Limited Warranty Deed
shall constitute constructive delivery of the Unit and immediately thereafter the risk of loss to the Unit and all obligations
and assessments provided in this Contract, the Project Plan and Declaration of Restrictions, the Articles of Incorporation
and By-Laws of the Association, and the House Rules, shall pertain to Buyer. 14
In August 2005, Camp John Hay Development issued certifications to Charter Chemical that the two (2) units were
fully paid under their offsetting scheme. However, the units were not delivered because the construction of Camp John
Hay Suites was not yet complete.15
Camp John Hay Development had initially estimated that the construction would be completed by 2006. In a Lease
Agreement16 executed on October 19, 1996, Camp John Hay Development and Bases Conversion and Development
Authority provided for a period of three and a half (3.5) years from the execution of the Lease Agreement to complete
the various physical components in Camp John Hay. When this timetable was not followed due to alleged mutual delays
and force majeure, they entered into at least four (4) more amendments to the Lease Agreement. Two (2) of these,
the July 18, 2003 and July 1, 2008 Memoranda of Agreement, covered the revision of the Project Implementation Plan
providing the targeted completion dates of the various facilities in Camp John Hay. 17
Under the July 18, 2003 revision, Camp John Hay Development and Bases Conversion and Development Authority
estimated that the second phase of the Camp John Hay Suites would be completed by the end of the second quarter
of 2006.18 Admitting various unforeseen events, Camp John Hay Development again failed to complete its construction.
Under the July 1, 2008 revision, the Camp John Hay Suites was estimated to be completed by 2012. 19
Due to the subsisting construction delay, Charter Chemical, through counsel, wrote Camp John Hay Development,
demanding that it transfer the units or pay the value of these units in the sum of ₱6,996,517.48.20
When it felt that further demands would be futile, Charter Chemical, on June 12, 2008, filed before the Construction
Industry Arbitration Commission a Request for Arbitration21 under the arbitration clause in the Contractor's Agreement.
In its March 30, 2009 Final Award,22 the Construction Industry Arbitration Commission ordered Camp John Hay
Development to pay the amounts of ₱5,900,000.00, the monetary value of the two (2) units in Camp John Hay Suites,
and ₱590,000.00 as attorney's fees.23
The arbitral tribunal ruled that Charter Chemical was entitled to its claim for the value of the two (2) units because
Camp John Hay Development failed to deliver the units within the targeted completion date.24
The Final Award read:
On the basis of the evidence the Arbitration Tribunal finds and so holds that:
1. Claimant is entitled to its claim for the monetary equivalent of the two (2) units CJH Suites in the total sum of
Php5,900,000.00.
2. Claimant is not entitled to its claim for exemplary damages.
3. Claimant is entitled to its claim for attorney's fees for the sum of Php590,000.00 which is 10% of the total
monetary value for the two (2) units CJH Suites of Php5,900,000.00 which had not been delivered by respondent.
4. The Court should not fix the period for the delivery of the subject units as provided for in Article 1197 of the Civil
Code because the reciprocal nature of the contract itself provides for the period of their delivery. Moreover, CIAC
can fix the period if necessary.25
Camp John Hay Development filed before the Court of Appeals a Petition for Review26 under Rule 43 of the Rules of
Court. It argued that the arbitral tribunal did not have jurisdiction over the dispute because the arbitration clause had
25
been superseded by a subsequent dispute resolution clause contained in the contracts to sell.27 It further asserted that
it had neither agreed on the completion date of the two (2) units nor admitted that the units were to be completed
within three (3) years from 2003 or 2005.28 Instead, it asked for a fixing of the term or period when the units would
be completed.29
In its May 13, 2011 Decision,30 the Court of Appeals affirmed the arbitral tribunal's award. It held that the arbitration
clause in the Contractor's Agreement was neither modified nor superseded by the contracts to sell, which were merely
devices by which to transfer possession and title over the units to Charter Chemical. The Contractor's Agreement, it
noted, remained the principal covenant.31
The Court of Appeals also ruled that Camp John Hay Development was already in delay when Charter Chemical
demanded the transfer of units on August 3, 2007. When Charter Chemical finished the work in 2003, a timetable
based on the 2003 Memorandum of Agreement between Camp John Hay Development and Bases Conversion and
Development Authority stated that the units would be completed by 2006. This showed that there was a definite time
for the completion of the units. Although Charter Chemical was an outsider to this agreement, it was "equivalent to an
announcement to all concerned that the units would be completed at such and such a date." 32
On June 3, 2011, Camp John Hay Development filed a Motion for Reconsideration, but it was denied by the Court of
Appeals in its September 30, 2011 Resolution.33
Camp John Hay Development received the September 30, 2011 Resolution on October 7, 2011. 34 Before the lapse of
the original 15-day period, it filed on October 21, 2011 a Motion for Extension of Time to File Petition for Review under
Rule 45, asking for a period of 30 days from October 22, 2011, or until November 21, 2011, within which to file the
Petition.35 This Motion for Extension was granted by this Court.36
On November 23, 2011, Camp John Hay Development filed a Petition for Review on Certiorari.37 Charter Chemical filed
its Comment38 on February 6, 2012 and, in turn, Camp John Hay Development filed its Reply 39 on May 16, 2012.
Petitioner contends that there is no specific date determined for the completion or delivery of the two (2) units in any
of its contracts with respondent. It argues that the action filed should have been for the fixing of a period under Articles
119140 and 119741 of the Civil Code, and not an action for the rescission of the contract. 42
According to petitioner, both the arbitral tribunal and the Court of Appeals erred in ruling that the Contractor's
Agreement between petitioner and respondent had a definite timetable based on the Memorandum of Agreement
between petitioner and the Bases Conversion and Development Authority. Moreover, petitioner argues that the
determination of whether there is an agreed completion date must be based on the agreement between petitioner and
respondent in their contract. Thus, when the Court of Appeals resorted to a separate agreement different from the
Contractor's Agreement, it recognized that the parties had never actually agreed on a specific completion date.43
Petitioner relies on Article 131144 of the Civil Code, which states that "contracts take effect only between the parties
who execute them."45 It also points out that respondent did not rely on the Master Development Plan in the
Memorandum of Agreement, maintaining that its representative admitted having never seen the Master Development
Plan when he signed the agreement.46 Petitioner also notes that at the time of the execution of the Contractor's
Agreement, respondent had not yet selected the two (2) units as part of its compensation for its painting works.
Petitioner argues that the date of delivery was not specified in the contracts to sell, which merely indicated that the
delivery would be "within a reasonable time from the date of completion of the subject units."47
Additionally, petitioner claims that the arbitral tribunal had no jurisdiction over the Complaint. It asserts that the
contracts to sell executed following the Contractor's Agreement contain a different mode of dispute resolution. 48 The
contracts to sell provide the following clause:
ARTICLE XIV: MISCELLANEOUS PROVISION
4. Venue - All actions involving this Contract shall be instituted only in the proper courts of Pasig City, Metro Manila
to the exclusion of all other courts.49
From the dispute resolution clause, petitioner points out that disputes must be adjudicated by the proper courts of
Pasig City, to the exclusion of all other courts. The contracts to sell also effectively removed the parties' dispute outside
the ambit of a construction dispute since they are not the construction contracts contemplated by Executive Order No.
1008, or the Construction Industry Arbitration Law.50
Petitioner further contests the award of attorney's fees to respondent, maintaining that neither the Court of Appeals
nor the arbitral tribunal has specified the factual basis for it. It argues that the award of attorney's fees is not justified
when both tribunals denied respondent's claim for exemplary damages and when petitioner has not been found to have
acted in bad faith. Respondent, it points out, also failed to present any official receipt to support its claim for attorney's
fees.51
On the other hand, respondent argues that the Court of Appeals' and the arbitral tribunal's decisions, entitling
respondent to the monetary equivalent of the units for offsetting, should be respected and accorded great weight and
finality. Respondent points out that it only agreed to bid for the painting works because Interpro, Inc., petitioner's
project manager, assured that under the Master Development Plan, the units would be available for occupancy two (2)
to three (3) years from negotiations, or sometime in 2003.52
Respondent further argues that since petitioner was already delayed in delivering the units in 2007, the arbitral tribunal
and the Court of Appeals correctly applied Article 1191 of the Civil Code, awarding indemnity for damages to
respondent.53
Moreover, respondent claims that the arbitral tribunal correctly acquired jurisdiction over the dispute because the
relationship of the parties was born out of the Contractor's Agreement. 54 The Contractor's Agreement provided the
arbitration clause in case of any dispute. The contracts to sell "cannot be considered to have superseded the
Contractor's Agreement"55 because they are merely preparatory contracts required for the processing of the titles of
the units.56
Lastly, respondent claims that the award of attorney's fees was justified, as petitioner's unwarranted delay and
unjustified refusal to settle the matter brought about its filing of the Complaint before the arbitral tribunal. 57
For this Court's resolution are the following issues:
First, whether or not the Court of Appeals erred in ruling that the Construction Industry Arbitration Commission has
jurisdiction over the dispute despite the existence of a dispute resolution clause;
Second, whether or not the Court of Appeals correctly rescinded the obligation under Article 1191 of the Civil Code
and whether or not a period should be fixed under Article 1197 of the Civil Code; and
Finally, whether or not the Court of Appeals erred in affirming the award of attorney's fees to respondent Charter
Chemical and Coating Corporation.
The Petition is denied.
I
26
The Construction Industry Arbitration Commission was created under Executive Order No. 1008 to establish an arbitral
machinery that will "settle expeditiously problems arising from, or connected with, contracts in the construction
industry."58 It has jurisdiction over "construction disputes between or among parties to an arbitration agreement, or
those who are otherwise bound by the latter, directly or by reference." 59 Its purpose is to encourage the early and
expeditious settlement of disputes in the construction industry, recognizing that it is necessary to avert delays in the
resolution of construction industry disputes, which is important to attain the national development goals. 60
Section 4 of the Construction Industry Arbitration Law lays down the jurisdiction of the Construction Industry Arbitration
Commission:
SECTION 4. Jurisdiction. - The CIAC shall have original and exclusive jurisdiction over disputes arising from, or
connected with, contracts entered into by parties involved in construction in the Philippines, whether the dispute
arises before or after the completion of the contract, or after the abandonment or breach thereof. These disputes
may involve government or private contracts. For the Board to acquire jurisdiction, the parties to a dispute must
agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and workmanship;
violation of the terms of agreement; interpretation and/or application of contractual time and delays; maintenance
and defects; payment, default of employer or contractor and changes in contract cost.
Excluded from the coverage of this law are disputes arising from employer-employee relationships which shall
continue to be covered by the Labor Code of the Philippines.
For the Construction Industry Arbitration Commission to acquire jurisdiction, the law merely requires that the parties
agree to submit to voluntary arbitration any dispute arising from construction contracts.
In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro Manila Tollways Corporation:61
Under Section I, Article III of the CIAC Rules, an arbitration clause in a construction contract shall be deemed as an
agreement to submit an existing or future controversy to CIAC jurisdiction, "notwithstanding the reference to a
different arbitration institution or arbitral body in such contract. . . ."
. . .. . . The arbitration clause in the construction contract ipso facto vested the CIAC with jurisdiction. This rule
applies, regardless of whether the parties specifically choose another forum or make reference to another arbitral
body. Since the jurisdiction of CIAC is conferred by law, it cannot be subjected to any condition; nor can it be waived
or diminished by the stipulation, act or omission of the parties, as long as the parties agreed to submit their
construction contract dispute to arbitration, or if there is an arbitration clause in the construction contract. The parties
will not be precluded from electing to submit their dispute to CIAC, because this right has been vested in each party
by law.
It bears to emphasize that the mere existence of an arbitration clause in the construction contract is considered by
law as an agreement by the parties to submit existing or future controversies between them to CIAC jurisdiction,
without any qualification or condition precedent. To affirm a condition precedent in the construction contract, which
would effectively suspend the jurisdiction of the CIAC until compliance therewith, would be in conflict with the
recognized intention of the law and rules to automatically vest CIAC with jurisdiction over a dispute should the
construction contract contain an arbitration clause.62 (Citations omitted)
Arbitration of construction disputes through the Construction Industry Arbitration Commission was incorporated into
the general statutory framework on alternative dispute resolution through Republic Act No. 9285, or the Alternative
Dispute Resolution Act of 2004.63 Chapter 6, Section 34 of this law explicitly referenced the Construction Industry
Arbitration Law, while Section 35 affirmed the Construction Industry Arbitration Commission's jurisdiction:
CHAPTER 6: Arbitration of Construction Disputes
 SECTION 34. Arbitration of Construction Disputes: Governing Law. - The arbitration of construction disputes shall
be governed by Executive Order No. 1008, otherwise known as the Construction Industry Arbitration Law.
SECTION 35. Coverage of the Law. Construction disputes which fall within the original and exclusive jurisdiction of
the Construction Industry Arbitration Commission (the "Commission") shall include those between or among parties
to, or who are otherwise bound by, an arbitration agreement, directly or by reference whether such parties are
project owner, contractor, subcontractor, fabricator, project manager, design professional, consultant, quantity
surveyor, bondsman or issuer of an insurance policy in a construction project.
The Commission shall continue to exercise original and exclusive jurisdiction over construction disputes although the
arbitration is "commercial" pursuant to Section 21 of this Act.
Arbitration, "[b]eing an inexpensive, speedy[,] and amicable method of settling disputes . . . is encouraged by the
Supreme Court."64 If any doubt will arise, it "should be resolved in favor of arbitration."65
In LM Power Engineering Corp. v. Capitol Industrial Construction Groups, Inc.,66 this Court explained the rationale
behind this policy:
Aside from unclogging judicial dockets, arbitration also hastens the resolution of disputes, especially of the
commercial kind. It is thus regarded as the "wave of the future" in international civil and commercial disputes.
Brushing aside a contractual agreement calling for arbitration between the parties would be a step backward.
Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods, courts should
liberally construe arbitration clauses. Provided such clause is susceptible of an interpretation that covers the asserted
dispute, an order to arbitrate should be granted. Any doubt should be resolved in favor of arbitration. 67 (Citations
omitted)
Here, petitioner and respondent agreed to submit to arbitration any dispute arising from the construction contract, as
clearly stipulated in their Contractor's Agreement. The arbitration clause should, thus, be given primacy in accordance
with the State's policy to favor arbitration. It follows that if there is any doubt as to what provision should be given
effect, this Court will rule in favor of the arbitration clause.
Moreover, the contracts to sell, containing a contrary dispute resolution clause, did not supersede the arbitration clause.
The case records show that the contracts to sell are not inconsistent with the Contractor's Agreement. They are merely
devices to facilitate the transfer of ownership of the two (2) units to respondent-an offshoot of the offsetting scheme
provision in the Contractor's Agreement.
While the contracts to sell and the Contractor's Agreement both refer to the transfer of the two (2) units to respondent,
the contracts to sell are pro-forma contracts provided by petitioner in selling the Camp John Hay Suites units. There is
no intent to supersede the Contractor's Agreement, which remains the principal contract between petitioner and
respondent.
Petitioner erred in claiming that because the contracts to sell are not construction contracts, they effectively removed
the parties' dispute outside the ambit of a construction dispute. On the contrary, the subject of the contracts to sell
still falls within the jurisdiction of the Construction Industry Arbitration Commission. Section 4 of the Construction
Industry Arbitration Law states that its jurisdiction includes "payment [and] default of employer or contractor[.]" Here,
the main dispute concerning the contracts to sell all boils down to the issue of payment of the two (2) units for the
services rendered by respondent. Hence, the units' transfer as payment to respondent still falls under the jurisdiction
of the arbitral tribunal.
27
This dispute is better left to the expertise of the Construction Industry Arbitration Commission, a quasi-judicial body
with the technical expertise to resolve disputes outside the expertise of regular courts. 68 Aptly, it should adjudicate and
determine the claims and rights of petitioner and respondent with respect to the construction contract and all its
incidents.
It is worth noting that this dispute has been ongoing for over a decade now. Despite numerous meetings and
negotiations prior to respondent's filing of a Complaint before the arbitral tribunal, no amicable settlement had been
reached. Disregarding the proceedings that took place before the lower tribunals and requiring the parties to submit
the dispute before the trial court would be merely dilatory at this point. It would only entail additional expenses and
unnecessary delays for both parties.
II
Rescission on account of breach of reciprocal obligations is provided under Article 1191 of the Civil Code:
ARTICLE 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance
with articles 1385 and 1388 and the Mortgage Law.
This provision refers to rescission applicable to reciprocal obligations. It is invoked when there is noncompliance by one
(1) of the contracting parties in case of reciprocal obligations. "Reciprocal obligations are those which arise from the
same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent
upon the obligation of the other. They are to be performed simultaneously such that the performance of one is
conditioned upon the simultaneous fulfillment of the other."69
Rescission under Article 1191 will be ordered when a party to a contract fails to comply with his or her obligation.
Rescission "is a principal action that is immediately available to the party at the time that the reciprocal [obligation]
was breached."70 In Spouses Velarde v. Court of Appeals:71
The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of
faith by the other party who violates the reciprocity between them. The breach contemplated in the said provision is
the obligor's failure to comply with an existing obligation. When the obligor cannot comply with what is incumbent
upon [him or her], the obligee may seek rescission and, in the absence of any just cause for the court to determine
the period of compliance, the court shall decree the rescission.72 (Citations omitted)
"Resolution grants the injured party the option to pursue, as principal actions, either a rescission or specific performance
of the obligation, with payment of damages in either case."73
Rescission of the contract is sanctioned here. Under the contract, petitioner and respondent have reciprocal obligations.
Respondent, for its part, was bound to render painting services for petitioner's property. This was completed by
respondent in 2003, after which it was belatedly issued a clearance in 2005. Meanwhile, in accordance with the
Contractor's Agreement, petitioner paid part of the contract price with the remaining balance to be paid through
offsetting of two (2) Camp John Hay Suites units. However, despite incessant demands from respondent, petitioner
failed to deliver these units because their construction had yet to be completed. The law, then, gives respondent the
right to seek rescission because petitioner could not comply with what is incumbent upon it. Petitioner, however, claims
that the fixing of the period under Article 1197 is the proper remedy, not rescission under Article 1191.
This Court disagrees. We cannot cure the deficiency here by fixing the period of the obligation. There is no just cause
for this Court to fix the period for the benefit of petitioner.
Article 1197 applies "when the obligation does not fix a period but from its nature and circumstances it can be inferred
that a period was intended[.]"74 This provision allows the courts to fix the duration "because the fulfillment of the
obligation itself cannot be demanded until after the court has fixed the period for compliance therewith and such period
has arrived."75
In Deudor v. J.M. Tuason & Company, Inc.:76
Article 1197 is part and parcel of all obligations contemplated therein. Hence, whenever a period is fixed pursuant to
said Article, the court merely enforces or carries out an implied stipulation in the contract in question. In fact, insofar
as contracts not fixing a period are concerned, said legal provision applies only if, from the nature and circumstances
surrounding the contract involved, "it can be inferred that a period was intended" by the parties thereto. For this
reason, the last paragraph of Article 1197, ordains that "in every case, the courts shall determine such period as may
under the circumstances have been probably contemplated by the parties." In other words, in fixing said period, the
Court merely ascertains the will of the parties and gives effect thereto. 77
As stipulated in Article 1197, this Court must determine that the obligation does not fix a period or that the period is
made to depend upon the will of the debtor, but it can be inferred from its nature and the circumstances that a period
was intended. Then, it must be determined what period was probably contemplated by the parties. 78
The power of this Court to fix a period is discretionary. The surrounding facts of each case must be taken into
consideration in deciding whether the fixing of a period is sanctioned. The discretion to fix an obligation's period is
addressed to this Court's judgment and is tempered by equitable considerations.
In Central Philippine University v. Court of Appeals,79 this Court refused to fix a period because of the years that had
already been allowed for the party to comply with the condition of the obligation. Doing so, it held, would be a mere
technicality and formality, and would only cause further delay. This Court ruled:
This general rule however cannot be applied considering the different set of circumstances existing in the instant
case. More than a reasonable period of fifty (50) years has already been allowed petitioner to avail of the opportunity
to comply with the condition even if it be burdensome, to make the donation in its favor forever valid. But,
unfortunately, it failed to do so. Hence, there is no more need to fix the duration of a term of the obligation when
such procedure would be a mere technicality and formality and would serve no purpose that to delay or lead to an
unnecessary and expensive multiplication of suits. Moreover, under Art. 1191 of the Civil Code, when one of the
obligors cannot comply with what is incumbent upon him, the obligee may seek rescission and the court shall decree
the same unless there is just cause authorizing the fixing of a period. In the absence of any just cause for the court
to determine the period of the compliance, there is no more obstacle for the court to decree the rescission
claimed.80 (Citation omitted)
In Gregorio Araneta, Inc. v. Philippine Sugar Estates Development Company, Ltd.,81 this Court held that if a reasonable
period was agreed upon in a contract, all that the court should have done was determine if that reasonable time had
already elapsed:
If the contract so provided, then there was a period fixed, a "reasonable time"; and all that the court should have
done was to determine if that reasonable time had already elapsed when suit was filed. If it had passed, then the
court should declare that petitioner had breached the contract, as averred in the complaint, and fix the resulting
damages. On the other hand, if the reasonable time had not yet elapsed, the court perforce was bound to dismiss
the action for being premature. But in no case can it be logically held that under the plea above quoted, the
intervention of the court to fix the period for performance was warranted, for Article 1197 is precisely predicated on
the absence of any period fixed by the parties.82
28
There is no just cause for this Court to determine the period of compliance. As can be gleaned from the records of this
case, the obligation of petitioner to build the Camp John Hay Suites had been dragging for years even before it entered
into the Contractor's Agreement with respondent.
The Memorandum of Agreement that petitioner executed with the Bases Conversion and Development Authority shows
that the construction of the Camp John Hay Suites began in 1996. When respondent demanded the units' transfer in
2007, more than 10 years had lapsed; yet, within those years, petitioner was still not able to complete the construction
of the Camp John Hay Suites.
To tolerate petitioner's excuses would only cause more delay and burden to respondent. Petitioner failed to forward
any just cause to convince this Court to set a period. It merely reasoned force majeure and mutual delays with Bases
Conversion and Development Authority without offering any explanation for its alleged difficulty in building the units.
To belatedly fix the period for petitioner's compliance would mean refusing immediate payment to respondent.
Petitioner's noncompliance with its obligation to deliver the two (2) units as payment to respondent can no longer be
excused.
The law and jurisprudence are clear. When the obligor cannot comply with its obligation, the obligee may exercise its
right to rescind the obligation, and this Court will order the rescission in the absence of any just cause to fix the
period.83 Here, lacking any reasonable explanation and just cause for the fixing of the period for petitioner's
noncompliance, the rescission of the obligation is justified.
III
Rescission of the obligation under Article 1191 is a declaration that a contract is void at its inception. Its effect is to
restore the parties to their original position, insofar as practicable. Fang v. Dueñas84 is illustrative:
Rescission has the effect of "unmaking a contract, or its undoing from the beginning, and not merely its termination."
Hence, rescission creates the obligation to return the object of the contract It can be carried out only when the one
who demands rescission can return whatever he may be obliged to restore. To rescind is to declare a contract void
at its inception and to put an end to it as though it never was. It is not merely to terminate it and release the parties
from further obligations to each other, but to abrogate it from the beginning and restore the parties to their relative
positions as if no contract has been made.85
Mutual restitution is required in cases involving rescission under Article 1191. "Where a contract is rescinded, it is
the duty of the court to require both parties to surrender that which they have respectively received and to place
each other as far as practicable in his original situation[;] the rescission has the effect of abrogating the contract in
all parts."86
In Spouses Serrano v. Court of Appeals:87
Generally, the rule is that to rescind a contract is not merely to terminate it, but to abrogate and undo it from the
beginning; that is, not merely to release the parties from further obligations to each other in respect to the subject
of the contract, but to annul the contract and restore the parties to the relative positions which they would have
occupied if no such contract had ever been made. Rescission necessarily involves a repudiation of the contract and a
refusal of the moving party to be further bound by it.88 (Citation omitted)
This Court has explained that restitution under Article 1385 of the Civil Code equally applies for rescission under Article
1191. In Laperal v. Solid Homes, Inc.:89
 Despite the fact that Article 1124 of the old Civil Code from whence Article 1191 was taken, used the term
"resolution", the amendment thereto (presently, Article 1191) explicitly and clearly used the term "rescission". Unless
Article 1191 is subsequently amended to revert back to the term "resolution", this Court has no alternative but to
apply the law, as it is written.
Again, since Article 1385 of the Civil Code expressly and clearly states that "rescission creates the obligation to return
the things which were the object of the contract, together with their fruits, and the price with its interest," the Court
finds no justification to sustain petitioners' position that said Article 1385 does not apply to rescission under Article
1191.90
Article 1385 of the Civil Code provides:
ARTICLE 1385. Rescission creates the obligation to return the things which were the object of the contract, together
with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands
rescission can return whatever he may be obliged to restore.
Neither shall rescission take place when the things which are the object of the contract are legally in the possession
of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss. (Emphasis supplied)
Although rescission repeals the contract from its inception, it does not disregard all the consequences that the contract
has created. What mutual rescission entails is "the return of the benefits that each party may have received as a result
of the contract."91
Here, it is clear that only petitioner benefited from the contract. Respondent has already performed the painting works
in 2003, and it was accepted by petitioner as satisfactory. Since this service cannot be undone and petitioner has
already enjoyed the value of the painting services over the years, respondent is entitled to the payment of the painting
services with interest in accordance with Articles 1191 and 2210 of the Civil Code. 92 The interest shall be computed
from the date of extrajudicial demand by respondent on August 3, 2007 in accordance with Article 1169 93 of the Civil
Code and this Court's ruling in Nacar v. Gallery Frames.94
IV
Generally, the parties may stipulate the recovery of attorney's fees, but in the absence of such, Article 2208 of the
Civil Code enumerates instances when these fees may still be recovered:95
ARTICLE 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs,
cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur
expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff; (4) In case of a clearly unfounded civil action or
proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just
and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen's compensation and employer's liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation
should be recovered.
In all cases, the attorney's fees and expenses of litigation must be reasonable. (Emphasis supplied)
29
Generally, attorney's fees cannot be recovered as part of damages, as no premium should be placed on the right to
litigate. In ABS-CBN Broadcasting Corporation v. Court of Appeals:96
[Attorney's fees] are not to be awarded every time a party wins a suit. The power of the court to award attorney's
fees under Article 2208 demands factual, legal, and equitable justification. Even when a claimant is compelled to
litigate with third persons or to incur expenses to protect his rights, still attorney's fees may not be awarded where
no sufficient showing of bad faith could be reflected in a party's persistence in a case other than an erroneous
conviction of the righteousness of his cause.97 (Citations omitted)
The grant of attorney's fees depends on the evaluation of each case and is within this Court's discretion. Attorney's
fees may be awarded if a party was forced to litigate and incur expenses to protect its right and interest due to another
party's unjustified act or omission.98
Here, we agree with the findings of the Construction Industry Arbitration Commission and the Court of Appeals.
Respondent is entitled to the award of attorney's fees.
In awarding attorney's fees, the arbitral tribunal explained that respondent was compelled to engage the services of a
lawyer to recover the two (2) Camp John Hay Suites units or their monetary value; thus, it incurred expenses to protect
its interest after petitioner had breached their contract.99 In affirming this Final Award, the Court of Appeals found that
respondent undeniably needed adequate legal representation to recover on a clearly demandable claim, making the
additional expense inevitable.100
Unmistakably, there was breach of faith. Petitioner violated the reciprocity of its contract with respondent. This case
dragged on for years because petitioner unjustifiably refused to pay respondent's valid claim. In the proceedings before
the arbitral tribunal, petitioner even rejected respondent's offer to settle the dispute by paying the balance of the
contract price. While petitioner enjoyed the benefit of the painting services, respondent is forced to await payment,
foregoing the use and value of money that have compounded over the years.
Clearly, petitioner's refusal to pay compelled respondent to file the Complaint and incur expenses in the process.
Considering the years that had lapsed, during which respondent incessantly demanded payment, it is only equitable to
award attorney's fees.
WHEREFORE, the Petition for Review on Certiorari is DENIED. The Court of Appeals May 13, 2011 Decision and
September 30, 2011 Resolution in CA-G.R. SP No. 108335 are AFFIRMED WITH MODIFICATION.
Petitioner Camp John Hay Development Corporation is ordered to pay respondent Charter Chemical and Coating
Corporation: (1) the balance of the contract price in the amount of Five Million Nine Hundred Thousand Pesos
(P5,900,000.00) with interest at the rate of twelve percent (12%) per annum from August 3, 2007 until June 30, 2013,
and six percent (6%) per annum from July 1, 2013 until its full satisfaction; and (2) attorney's fees in the amount of
Five Hundred Ninety Thousand Pesos (P590,000.00).
G.R. No. 220008
SOCORRO T. CLEMENTE, as substituted by SALVADOR T. CLEMENTE, Petitioner
vs.
REPUBLIC OF THE PHILIPPINES (Department of Public Works and Highways, Region IV-A), Respondent
The Case
This is a petition for review on certiorari under Rule 45 of the Rules of Court. Petitioner Salvador T.
Clemente1 challenges the 17 October 2014 Decision2 and the 14 August 2015 Resolution3 of the Court of Appeals (CA)
in CA-G.R. CV No. 91522. The CA affirmed the 24 September 2007 Decision 4 and 4 April 2008 Resolution5 of the
Regional Trial Court (RTC), Branch 64 of Mauban, Quezon, dismissing the Complaint 6 and Amended Complaint7 for
Revocation of Donation, Reconveyance and Recovery of Possession filed by Socorro T. Clemente (Socorro) against the
Republic of the Philippines through its agency, the Department of Public Works and Highways (DPWH) Region IV-A.
The Facts
Municipal Mayor Amado A. Clemente (Mayor Clemente), Dr. Vicente A. Clemente, Judge Ramon A. Clemente, and
Milagros A. Clemente (Clemente Siblings) were the owners of a parcel of land covered by Transfer Certificate of Title
(TCT) No. T-50896. During their lifetime, they executed a Deed of Donation8 dated 16 March 1963 over a one-hectare
portion of their property (Subject Property) in favor of the Republic of the Philippines. The Deed of Donation provided:
[T]he herein DONORS hereby voluntarily and freely give, transfer and convey, by way of unconditional donation, unto
said DONEE, his executors and administrators, all of the rights, title and interest which the aforesaid DONORS have or
which pertain to them and which they owned exclusively in the above-described real property over a one-hectar[e]
portion of the same, solely for hospital site only and for no other else, where a Government Hospital shall be
constructed, free from all liens and encumbrances whatsoever, which portion of the land had been segregated in the
attached subdivision plan x x x.9
In the same Deed of Donation, District Engineer II Ciceron A. Guerrero of DPWH Region IV-A accepted said donation.
On 29 March 1963, TCT No. T-50896 was partially cancelled by TCT No. T-51745 covering the Subject Property and
issued in the name of the Province of Quezon.
In accordance with the Deed of Donation, the construction of a building for a hospital was started in the following year.
However, for reasons unknown, the construction was never completed and only its foundation remains today.
In a letter dated 23 August 2003,10 Socorro and Rosario P. Clemente wrote to the District Engineer of Quezon asking
for information on the development of the government hospital, as they were aware that the construction of the
foundation of the hospital structure had already been started. In a subsequent letter dated 24 November 2003, Socorro
wrote to the District Engineer restating their inquiry and consultation on 20 November 2003, when the District Engineer
informed her that the DPWH no longer had a plan to construct a hospital at the site and that the DPWH had no budget
for the hospital construction.11
In 2004, almost forty-one (41) years after the Deed of Donation was executed, Socorro, as heir and successor-in-
interest of Mayor Clemente, filed a Complaint, and subsequently an Amended Complaint, for Revocation of Donation,
Reconveyance and Recovery of Possession alleging that the Republic of the Philippines failed to comply with the
condition imposed on the Deed of Donation, which was to use the property "solely for hospital site only and for no
other else, where a [government [h]ospital shall be constructed."12
30
The Ruling of the RTC
On 24 September 2007, the RTC rendered its Decision13 dismissing the case on the ground of prematurity. The RTC
held that the Republic agreed to comply with the condition of constructing a government hospital, and it initially
commenced its construction. However, it was not completed for unknown reasons, and that only the foundation
remains, after the construction was cannibalized by the people in the area. The RTC held that based on the records, it
was only in the last semester of 2003 that Socorro demanded the construction of the hospital. Despite such demand,
no hospital was built on the donated property. The RTC held that since the parties did not fix the period within which
to comply with the condition, but a period was indeed intended, the Court may fix the period for the performance of
the donee's obligation, under Article 1197 of the Civil Code. However, since Socorro failed to pray for the fixing of the
period, the RTC dismissed the case. The RTC held:
Answering the issue posed, therefore, for resolution by the Court, it can now safely be said that the deed of donation,
at this point in time, cannot be revoked to revert the ownership of the land donated to the heirs of the donee on the
ground of prematurity.
WHEREFORE, the Court orders the dismissal of this case as it is hereby dismissed.
In a Resolution dated 4 April 2008, the RTC denied the Motion for Reconsideration filed by Socorro, affirming its Decision
that the donation was revocable before the fulfillment of the resolutory condition to construct the government hospital,
and that such condition was subject to a period even if no period was actually stipulated in the Deed of Donation. Thus,
Socorro appealed to the CA.
The Ruling of the CA
In a Decision dated 17 October 2014, the CA denied the appeal, finding that while there may be basis for the recovery
of the property, Socorro, as an heir of a deceased co-donor, cannot assert the concept of heirship to participate in the
revocation of the property donated by her successor-in-interest. The CA held:
Prescinding simply from the hypothetical effect of succession for Socorro T. Clemente, neither was there any assertion
on the initiatory pleading nor evidence from the plaintiff-appellant as to any judicial or extra-judicial settlement of
the estate of her husband as co-donor. And without any representation from Socorro T. Clemente on the Amended
Complaint as to previous determination of heirs, full liquidation of the estate and payment of estate debts, if any, it
cannot be assumed, and the plaintiff's representatives cannot assert heirship, that a portion of the property donated
was still part of the estate of Socorro T. Clemente's husband. Corollary thereto, Section 2, Rule 73 of the Revised
Rules of Court illuminates that until liquidation of the property, neither the widow nor the heirs can sue for
participation therein.
Thus, based on the lacuna from the plaintiff-appellant, when assayed by vital tenets in law, the plaintiff's
representative ventilated an inchoate right via the Amended Complaint.
WHEREFORE, by reason of the foregoing premises towards prematurity of the suit below, the appeal is hereby
DENIED.
In a Resolution dated 14 August 2015, the CA denied the Motion for Partial Reconsideration. Hence, this petition. 16
The Issues
The petition raises the following issues:
A. WHETHER OR NOT THE "SETTLEMENT OF AN ESTATE" OR THE "DETERMINATION OF HEIRS, FULL LIQUIDATION
OF THE ESTATE AND PAYMENT OF ESTATE DEBTS" OF THE CO-OWNERS IS A NECESSARY REQUIREMENT BEFORE
THE PETITIONER (THE ONLY SURVIVING SPOUSE OF ONE OF THE CO-OWNERS) MAY FILE THIS ACTION FOR
REVOCATION OF DONATION, RECONVEYANCE AND RECOVERY OF POSSESSION OF THE PROPERTY WHICH THEY
 DONATED ON MARCH 16, 1963 OR 52 YEARS AGO, SINCE ANYWAY THE ACTION SHALL INDISPUTABLY BENEFIT ALL
CO-HEIRS?
B. WHETHER OR NOT THE FAILURE OF THE OTHER CO-HEIRS TO JOIN PETITIONER IN THIS ACTION IS A GROUND
FOR ITS DISMISSAL ALTHOUGH THE ACTION IS FOR THE BENEFIT OF ALL THE CO-HEIRS AS BENEFICIAL OWNERS
AND ALTHOUGH THIS KIND OF LEGAL ACTION COVERS ALL KINDS OF ACTION FOR THE RECOVERY OF POSSESSION,
I.E., FORCIBLE ENTRY AND UNLAWFUL DETAINER (ACCION INTERDICTAL), RECOVERY OF POSSESSION (ACCION
PUBLICIANA) AND RECOVERY OF OWNERSHIP (ACCION [REIVINDICATORIA])?
C. WHETHER OR NOT THE ACTION IS PREMATURE? IF NOT, WHETHER OR NOT IT IS BARRED BY THE CONTRARY
DOCTRINE OF PRESCRIPTION OR LACHES? NOTWITHSTANDING THAT THE DONATION IS ONEROUS THEREBY
REMOVING IT FROM THE AMBIT OF THE LAW OF DONATIONS AND INSTEAD PLACING IT WITHIN THE PURVIEW OF
THE LAW ON OBLIGATIONS AND CONTRACTS UNDER ART. 733, CIVIL CODE?17
The Ruling of the Court
The petition is meritorious.
The nature of the donation made by the Clemente Siblings is a donation subject to a condition – the condition being
the construction of a government hospital and the use of the Subject Property solely for hospital purposes. Upon the
non-fulfillment of the condition, the donation may be revoked and all the rights already acquired by the donee shall be
deemed lost and extinguished.18 This is a resolutory condition because it is demandable at once by the done 19 but the
non-fulfillment of the condition gives the donor the right to revoke the donation. 20
In this case, upon the execution of the Deed of Donation and the acceptance of such donation in the same instrument,
ownership was transferred to the Republic, as evidenced by the new certificate of title issued in the name of the
Province of Quezon. Because the condition in the Deed of Donation is a resolutory condition, until the donation is
revoked, it remains valid.21 However, for the donation to remain valid, the donee must comply with its obligation to
construct a government hospital and use the Subject Property as a hospital site. The failure to do so gives the donor
the right to revoke the donation. Article 764 of the Civil Code provides:
Art. 764. The donation shall be revoked at the instance of the donor, when the donee fails to comply with any of the
conditions which the former imposed upon the latter.
In this case, the property donated shall be returned to the donor, the alienations made by the donee and the
mortgages imposed thereon by him being void, with the limitations established, with regard to third persons, by the
Mortgage Law and the Land Registration Laws.
This action shall prescribe after four years from the non-compliance with the condition, may be transmitted to the
heirs of the donor, and may be exercised against the donee's heirs.
Respondent argues that the obligation to construct a hospital was fulfilled when respondent started to construct a
hospital.
We do not agree. It is clear from the records that the donee failed to comply with its obligation to construct a
government hospital and to use the premises as a hospital site.
When the parties provided in the Deed of Donation that the donee should construct a government hospital, their
intention was to have such hospital built and completed, and to have a functioning hospital on the Subject Property.
This can be evidenced by the accompanying words in the Deed of Donation – "solely for hospital site only and for no
other else, where a [g]overnment [h]ospital shall be constructed." The condition imposed upon the donee has two
31
parts – first, to construct a government hospital, and second, to use the Subject Property solely as a hospital site. The
argument of respondent that the mere construction of the foundation of a building complies with the condition that a
government hospital be constructed on the Subject Property is specious. A foundation of a building is obviously not a
government hospital. The other condition in the Deed of Donation, which is to use the Subject Property solely as a
hospital site, is also not complied with when the Subject Property is left idle, which means the Subject Property is not
being used as a hospital site. The foundation of a building cannot function as a hospital site. Thus, even if we are to
consider, for the sake of argument, that the construction of the foundation of a hospital building is enough to comply
with the obligation to construct a government hospital, the subsequent abandonment of the construction results in the
non-compliance with the second part of the donee's obligation – which is to use the Subject Property solely as a hospital
site.
Based on the foregoing, we find that the donee failed to comply with the resolutory condition imposed in the Deed of
Donation.
Determination of Heirs
Petitioner also argues that there is no need for a settlement of the estate before an action for revocation of donation,
reconveyance, and recovery of possession of property may be filed by an heir of a co-owner.
We agree.
It has been settled that a co-heir or co-owner may bring suit without impleading all the other co-owners if the suit is
for the benefit of all. In Spouses Mendoza v. Coronel,22 we held:
[T]he law now allows a co-owner to bring an action for ejectment, which covers all kinds of actions for the recovery
of possession, including forcible entry and unlawful detainer, without the necessity of joining all the other co-owners
as co-plaintiffs, because the suit is deemed to be instituted for the benefit of all. 23
In subsequent cases, this Court has consistently held that as long as the co-owner recognizes the co-ownership, there
is no need to implead all the co-owners in all kinds of action for recovery of possession. In Catedrilla v. Lauron,24 we
held:
Petitioner can file the action for ejectment without impleading his co-owners. In Wee v. De Castro, wherein petitioner
therein argued that the respondent cannot maintain an action for ejectment against him, without joining all his co-
owners, we ruled in this wise:
Article 487 of the New Civil Code is explicit on this point:
ART. 487. Any one of the co-owners may bring an action in ejectment.
This article covers all kinds of action for the recovery of possession, i.e., forcible entry and unlawful detainer (accion
interdictal), recovery of possession (accion publiciana), and recovery of ownership (accion de reivindicacion). As
explained by the renowned civil[i]st, Professor Arturo M. Tolentino:
A co-owner may bring such an action, without the necessity of joining all the other co-owners as co-plaintiffs, because
the suit is deemed to be instituted for the benefit of all. If the action is for the benefit of the plaintiff alone, such that
he claims possession for himself and not for the co-ownership, the action will not prosper.
In the more recent case of Carandang v. Heirs of De Guzman, this Court declared that a co-owner is not even a
necessary party to an action for ejectment, for complete relief can be afforded even in his absence, thus:
In sum, in suits to recover properties, all co-owners are real parties in interest. However, pursuant to Article 487 of
the Civil Code and the relevant jurisprudence, any one of them may bring an action, any kind of action for the
recovery of co-owned properties. Therefore, only one of the co-owners, namely the co-owner who filed the suit for
the recovery of the co-owned property, is an indispensable party thereto. The other co-owners are not indispensable
 parties. They are not even necessary parties, for a complete relief can be afforded in the suit even without their
participation, since the suit is presumed to have been filed for the benefit of all co-owners.
In this case, although petitioner alone filed the complaint for unlawful detainer, he stated in the complaint that he is
one of the heirs of the late Lilia Castigador, his mother, who inherited the subject lot, from her parents. Petitioner
did not claim exclusive ownership of the subject lot, but he filed the complaint for the purpose of recovering its
possession which would redound to the benefit of the co-owners. Since petitioner recognized the existence of a co-
ownership, he, as a co-owner, can bring the action without the necessity of joining all the other co-owners as co-
plaintiffs.25 (Emphasis supplied)
In this case, it is not disputed that Socorro is an heir of one of the donors. Moreover, her prayer in her action was to
revoke the Deed of Donation and to cancel the TCT issued in the name of the Province of Quezon, and to issue a new
certificate in the names of the heirs of the Clemente Siblings, pro-indiviso, and to direct the Republic to surrender
or reconvey possession over the property to the heirs of the Clemente Siblings.26 It is clear, therefore, that Socorro
acknowledges and continues to recognize her co-heirs as co-owners of the Subject Property. Further, based on the
Complaint and Amended Complaint of Socorro, it is clear that the suit was intended for the benefit of all the co-heirs
of the Clemente Siblings. Thus, there is no need to implead the other co-heirs for the action to proceed as it is for the
benefit of the co-ownership.
Moreover, there is no need for the settlement of the estate before one of the heirs can institute an action on behalf of
the other co-heirs. Although an heir's right in the estate of the decedent which has not been fully settled and partitioned
is merely inchoate, Article 493 of the Civil Code 27 gives the heir the right to exercise acts of ownership.28 Thus, even
before the settlement of the estate, an heir may file an action for reconveyance of possession as a co-owner thereof,
provided that such heir recognizes and acknowledges the other co-heirs as co-owners of the property as it will be
assumed that the heir is acting on behalf of all the co-heirs for the benefit of the co-ownership.
No Prescription or Laches
The last issue raised by petitioner is whether the action is premature, or if it has been barred by prescription or laches.
Respondent argues that the action has already prescribed because it has been more than ten (10) years since the
violation of the condition in the Deed of Donation.
We find that this action is not premature, and has not been barred by prescription or laches.
An action for reconveyance based on a violation of a condition in a Deed of Donation should be instituted within ten
(10) years from the time of such violation.29 Moreover, an action to revoke a donation based on non-compliance of the
condition prescribes after four (4) years from such non-compliance.30 Thus, in both cases, to be able to determine
whether the action has prescribed, the time of non-compliance must first be determined. This is because the failure to
comply with the condition imposed will give rise to the cause of action against the obligor-donee, which is also the
starting point of when to count the prescriptive period.
It is imperative to determine the period within which the donee has to comply with the condition to construct a
government hospital and use the site solely as a hospital site, because it is only after such time that it can be determined
with certainty that there was a failure to comply with the condition. Without such determination, there is no way to
determine whether the donee failed to comply with its obligation, and consequently, whether the prescriptive period to
file an action has started to run. Prescription cannot set in if the period to comply with the obligation cannot be
determined with certainty. In this case, the Deed of Donation is bereft of any period within which the donee should
have complied with the condition of constructing a government hospital. Thus, the action has not yet prescribed.
32
Based on the Deed of Donation, however, it is apparent that a period was indeed intended by the parties. By agreeing
to the conditions in the Deed of Donation, the donee agreed, and it bound itself to construct a government hospital
and to use the Subject Property solely for hospital purposes. The construction of the said hospital could not have been
intended by the parties to be in a state of limbo as it can be deduced that the parties intended that the hospital should
be built within a reasonable period, although the Deed of Donation failed to fix a period for such construction.
In this situation, Article 1197 of the Civil Code squarely applies:
Article 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that
a period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the courts shall determine such period as may under the circumstances have been probably
contemplated by the parties. Once fixed by the courts, the period cannot be changed by them.
Based on the foregoing provision, the RTC reasoned that the action is premature because there can be no breach before
the court fixes a period to comply with the obligation.
We disagree.
While ideally, a period to comply with the condition should have been fixed by the Court, we find that this will be an
exercise in futility because of of the fact that it has been more than fifty (50) years since the Deed of Donation has
been executed; and thus, the reasonable time contemplated by the parties within which to comply with the condition
has already lapsed. In Central Philippine University v. Court of Appeals,31 which had a similar factual background with
this case, the Court held:
Thus, when the obligation does not fix a period but from its nature and circumstances it can be inferred that a period
was intended, the general rule provided in Art. 1197 of the Civil Code applies, which provides that the courts may fix
the duration thereof because the fulfillment of the obligation itself cannot be demanded until after the court has fixed
the period for compliance therewith and such period has arrived.
This general rule however cannot be applied considering the different set of circumstances existing in the instant
case. More than a reasonable period of fifty (50) years has already been allowed petitioner to avail of the opportunity
to comply with the condition even if it be burdensome, to make the donation in its favor forever valid. But,
unfortunately, it failed to do so. Hence, there is no more need to fix the duration of a term of the obligation when
such procedure would be a mere technicality and formality and would serve no purpose than to delay or lead to an
unnecessary and expensive multiplication of suits. Moreover, under Art. 1191 of the Civil Code, when one of the
obligors cannot comply with what is incumbent upon him, the obligee may seek rescission and the court shall decree
the same unless there is just cause authorizing the fixing of a period. In the absence of any just cause for the court
to determine the period of the compliance, there is no more obstacle for the court to decree the rescission
claimed.32 (Emphasis supplied)
Further, in 2003, Socorro already wrote to DPWH asking for updates on the construction of the government hospital.
However, the DPWH informed her that there were no plans to build any hospital on the Subject Property. Thus, it is
clear that the donee no longer has the intention of fulfilling its obligation under the Deed of Donation. It has now
become evident that the donee will no longer comply with the condition to construct a hospital because a government
hospital was already built in another barangay, Barangay Polo. 33 If it becomes indubitable that the event, in this case
the construction of the hospital, will not take place, then the obligation of the donor to honor the donation is
extinguished.34 Moreover, the donor-obligee can seek rescission of the donation if the donee-obligor has manifested
no intention to comply with the condition of the donation.35
For the same reason, we find that laches has not set in. Laches is defined as the failure or neglect for an unreasonable G.R. No. 191189 January 29, 2014
and unexplained length of time to do that which, by exercising due diligence, could or should have been done earlier;
it is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled MANLAR RICE MILL, INC., Petitioner,
to assert it either has abandoned it or declined to assert it.36 vs.
LOURDES L. DEYTO, doing business under the trade name "J.D. Grains Center" and JENNELITA DEYTO ANG,
Because of the failure of the Deed of Donation to specify the period within which to comply with the condition, there a.k.a. "JANET ANG," Respondents.
can be no delay in asserting the right against respondent. In contrast, respondent is guilty of unreasonable delay and
neglect in complying with its obligation to construct a government hospital and to use the Subject Property as a hospital As a general rule, a contract affects only the parties to it, and cannot be enforced by or against a person who is not a
site. party thereto.

Based on the foregoing, the revocation of the donation and the reconveyance and recovery of possession of the Subject
Property in favor of the donors – or the heirs of the donors – are necessary and proper.
WHEREFORE, the petition is GRANTED. The 17 October 2014 Decision and the 14 August 2015 Resolution of the
Court of Appeals in CA-G.R. CV No. 91522 are hereby REVERSED and SET ASIDE. The Regional Trial Court of Mauban,
Quezon, Branch 64, is ORDERED to cause the cancellation by the Register of Deeds of Quezon of TCT No. T-51745
and the issuance, in lieu thereof, of the corresponding certificate of title in the name of the heirs of Amado A. Clemente,
Dr. Vicente A. Clemente, Judge Ramon A. Clemente, and Milagros A. Clemente.
This Petition for Review on Certiorari1 seeks to set aside the October 30, 2009 Decision2 of the Court of Appeals (CA)
in CA-G.R. CV No. 91239, entitled "Maniar Rice Mill, Inc., Plaintiff-Appellee, versus Lourdes L. Deyto, doing business
under the trade name JD Grains Center, Defendant-Appellant," as well as its February 9, 2010 Resolution 3 denying
reconsideration of the assailed judgment.
Factual Antecedents
Petitioner Maniar Rice Mill, Inc. (Maniar), organized and existing under Philippine laws, is engaged in the business of
rice milling and selling of grains. Respondent Lourdes L. Deyto (Deyto) does business under the trade name "JD Grains
Center" and is likewise engaged in the business of milling and selling of grains. Respondent Jennelita Deyto Ang or
Janet Ang (Ang) is Deyto’s daughter and, prior to her alleged absconding, operated her own rice trading business
through her own store, "Janet Commercial Store".4

It appears that in October 2000, Ang entered into a rice supply contract with Manlar, with the former purchasing rice
from the latter amounting to ₱3,843,220.00. The transaction was covered by nine postdated checks issued by Ang
from her personal bank/checking account with Chinabank, 5 to wit:
Check Number Date Amount (PhP)

146514 October 19, 2000 P 204,660.00

146552 October 20, 2000 472,200.00

146739 October 27, 2000 327,600.00

146626 October 26, 2000 212,460.00

146627 6
October 27, 2000 565,600.00

146740 October 30, 2000 515,000.00

146628 October 31, 2000 358,500.00

146630 November 4, 2000 593,600.00

146555 November 6, 2000 593,600.00

TOTAL P 3,843,220.00
Upon presentment, the first two checks were dishonored for having been drawn against insufficient funds; the
remaining seven checks were dishonored for being drawn against a closed account. Manlar made oral and written
demands upon both Deyto and Ang, which went unheeded.7 It appears that during the time demand was being made
upon Deyto, she informed Manlar, through its Sales Manager Pablo Pua (Pua), that Ang could not be located.8

33
On November 24, 2000,9 Manlar filed a Complaint10 for sum of money against Deyto and Ang before the Regional Trial
Court (RTC) of Quezon City. The case was docketed as Civil Case No. Q-00-42527 and assigned to Branch 215. The
Complaint essentially sought to hold Deyto and Ang solidarily liable on the rice supply contract. Manlar prayed for
actual damages in the total amount of ₱3,843,220.00, with interest; ₱300,000.00 attorney’s fees, with charges for
appearance fees; and attachment bond and attachment expenses.
Deyto filed her Answer with Compulsory Counterclaim,11 claiming that she did not contract with Manlar or any of its
representatives regarding the purchase and delivery of rice; that JD Grains Center was solely owned by her, and Ang
had no participation therein, whether as employee, consultant, agent or other capacity; that JD Grains Center was
engaged in rice milling and not in the buying and selling of rice; and that one of her customers was her daughter Ang,
who was engaged in the buying and selling of rice under the trade name "Janet Commercial Store." Deyto prayed
among others that the Complaint be dismissed.
For her part, Ang failed to file an Answer despite summons by publication; for this reason, she was declared in default.
On June 7, 2001, Manlar submitted to the trial court a notarized minutes of a special meeting of its board of
directors12 dated November 8, 2000, indicating that Pua was authorized to file and prosecute the Complaint in Civil
Case No. Q-00-42527.
In a July 31, 2001 Resolution,13 the trial court resolved to deny Deyto’s special/affirmative defenses contained in her
Answer. Regarding her objection to Pua’s authority to prosecute the case for lack of the proper board resolution to such
effect, the trial court held that the issue had been rendered moot by Manlar’s submission on June 7, 2001 of the
notarized board resolution.
During trial, Manlar presented its lone witness, Pua, who testified that he knew Deyto and Ang since 1995; that Ang
was the Operations Manager of JD Grains Center; that they (Deyto and Ang) bought rice from Manlar on "cash on
delivery" basis from 1995 up to 2000; that since 2000, they increased the volume of their purchases and requested
that they pay Manlar by postdated checks on a weekly basis, to which Manlar acceded; that Manlar agreed to this
arrangement because Deyto induced Pua to deliver rice on the assurance that Deyto had extensive assets, financial
capacity and a thriving business, and Deyto provided Pua with copies of JD Grains Center’s certificate of registration,
business permit, business card, and certificates of title covering property belonging to Deyto; that when rice deliveries
were made by Manlar, Deyto was not around; that it was solely Ang who issued the subject checks and delivered them
to Pua or Manlar; that initially, they (Deyto and Ang) faithfully complied with the arrangement; that later on, they
defaulted in their payments thus resulting in the dishonor of the subject nine checks previously issued to Manlar; that
by then, Manlar had delivered rice to them totaling ₱3,843,220.00; that he went to the residence of Deyto at No. 93
Bulusan Street, La Loma, Quezon City on five occasions to demand payment from Deyto; and that he likewise went to
Ang’s residence at No. 4 Sabucoy14 Street, San Francisco del Monte, Quezon City to demand payment.15
On cross-examination, Pua testified that no rice deliveries were in fact made by Manlar at Deyto’s Bulusan Street
residence; that Deyto guaranteed Ang’s checks, although the guarantee was made verbally; that although he ordered
Manlar’s drivers to deliver rice at Deyto’s residence at Bulusan Street, the deliveries would actually end up at Ang’s
Sabucoy residence.16
On the other hand, the defense presented three witnesses: Deyto, her son Jose D. Ang, and Homer Petallano
(Petallano), Chinabank del Monte branch Operations Head. Deyto testified that she did not know Pua; that Pua was a
liar and that she did not enter into a contract with him for the purchase and delivery of rice; that she did not receive
at any time any rice delivery from Manlar; that while she had a house at No. 93 Bulusan Street, La Loma, Quezon City,
she actually resided in Santiago City, Isabela; that she met Pua for the first time when the latter went to her La Loma
residence sometime in November or December 2000 looking for Ang, and claiming that Ang was indebted to Manlar;
34
that she had nothing to do with the obligations of Ang incurred for rice deliveries made to her or JD Grains Center, as
Ang was not connected with JD Grains Center, and it was her son, Jose D. Ang, who managed and ran the business;
that all the checks issued to Manlar were drawn by Ang from her own bank account, as a businessperson in her own
right and with her own business and receipts; that as of 2000, Ang was the proprietress of Jane Commercial with
address at No. 49 Corumi Street, Masambong, San Francisco del Monte, Quezon City, and not at No. 93 Bulusan Street,
La Loma, Quezon City; that the last time she saw Ang was in June 2000, during the blessing of Ang’s Sabucoy residence;
that she was not on talking terms with her daughter as early as June 2000 on account of Ang’s activities and
involvements; that one of Ang’s children was living with her after the child was recovered from a kidnapping perpetrated
by Ang’s best friend; that Ang’s other child lived with the child’s father; and that Ang’s whereabouts could not be
ascertained.17
Jose D. Ang, on the other hand, testified that he is Deyto’s son; that from the start, JD Grains Center has been under
his supervision and control as Manager and Deyto had no participation in the actual operation thereof; that JD Grains
Center was registered in the name of Deyto for convenience, to avoid jealousy or intrigue among his siblings, and
because they used Deyto’s properties as collateral to borrow money for the business; that Ang was originally an agent
of JD Grains Center, but was removed in 1997 for failure to remit her collections.18
Finally, Petallano testified that he was the Operations Head of Chinabank del Monte branch and that Ang is the sole
owner and depositor of the account from which the subject checks were drawn. 19
Ruling of the Trial Court
On November 22, 2007, a Decision20 was rendered by the trial court in Civil Case No. Q-00-42527, the dispositive
portion of which reads, as follows:
WHEREFORE, premises considered, judgment is hereby rendered finding the defendants liable to the plaintiff jointly
and severally and ordering them as follows:
1. To pay plaintiff actual damages in the sum of ₱3,843,200.0021 plus interest [thereon] at 6% per annum reckoned
from the time of demand up to the time of payment thereof;
2. To pay plaintiff attorney’s fees in the sum of ₱200,000.00 plus ₱2,500.00 as per appearance fee; and
3. To pay the costs of this suit.
Essentially, the trial court believed Pua’s declarations that both Deyto and Ang personally transacted with him in
purchasing rice from Manlar for JD Grains Center – with Ang paying for the deliveries with her personal checks and his
testimony that both Deyto and Ang received Manlar’s rice deliveries. For these reasons, the trial court ruled that both
defendants should be held solidarily liable for the unpaid and outstanding Manlar account.
Ruling of the Court of Appeals
Deyto went up to the CA on appeal, assailing the Decision of the trial court and claiming that there was no evidence to
show her participation in the transactions between Manlar and Ang, or that rice deliveries were even made to her; that
she had no legal obligation to pay Manlar what Ang owed the latter in her personal capacity; that the evidence proved
that Ang had overpaid Manlar; that the Complaint in Civil Case No. Q-00-42527 was defective for lack of the required
board resolution authorizing Pua to sign the Complaint, verification, and certification against forum shopping on behalf
of Manlar; and that the trial court erred in not awarding damages in her favor.
On October 30, 2009, the CA issued the assailed Decision, which held thus:
WHEREFORE, premises considered, the assailed Decision dated November 22, 2007 in Civil Case No. Q-00-42527 of
the Regional Trial Court, Branch 215, Quezon City is REVERSED and SET ASIDE, and a new one entered, DISMISSING
the complaint for lack of merit.
The CA held that in the absence of a board resolution from Manlar authorizing Pua to sign the verification and
certification against forum shopping, the Complaint in Civil Case No. Q-00-42527 should have been dismissed; the
subsequent submission on June 7, 2001 – or six months after the filing of the case – of the notarized minutes of a
special meeting of Manlar’s board of directors cannot have the effect of curing or amending the defective Complaint,
as Revised Supreme Court Circular No. 28-9124 enjoins strict compliance. Substantial compliance does not suffice.
The CA added that the trial court’s Decision overlooked, misapprehended, and failed to appreciate important facts and
circumstances of the case. Specifically, it held that Manlar failed to present documentary evidence to prove deliveries
of rice to Deyto, yet the trial court sweepingly concluded that she took actual delivery of Manlar’s rice. Likewise, Pua’s
declaration that Manlar delivered rice to Deyto at her La Loma residence was not based on personal knowledge or
experience, but on Manlar’s drivers’ supposed accounts of events. Because these drivers were not called to testify on
such fact or claim, the CA held that Pua’s testimony regarding Deyto’s alleged acceptance of rice deliveries from Manlar
was hearsay.
The appellate court conceded that if Ang indeed contracted with Manlar, she did so on her own; the evidence failed to
indicate that Deyto had any participation in the supposed transactions between her daughter and Manlar. The record
reveals that Deyto and Ang owned separate milling and grains businesses: JD Grains Center and Janet Commercial
Store. If Ang did business with Manlar, it is likely that she did so on her own or in her personal capacity, and not for
and in behalf of Deyto’s JD Grains Center. Besides, the subject checks were drawn against Ang’s personal bank account,
therefore Ang, not Deyto is bound to make good on the dishonored checks.
Thus, the CA concluded that there is no legal basis to hold Deyto solidarily liable with Ang for what the latter may owe
Manlar.
Manlar moved for reconsideration, but in its February 9, 2010 Resolution, the CA stood its ground. Hence, Manlar took
the present recourse.
Issues
Manlar raises the following issues in its Petition:
1. THE COURT OF APPEALS COMMITTED CLEAR REVERSIBLE ERROR WHEN IT SET ASIDE THE JUDGMENT OF THE
TRIAL COURT BY SWEEPINGLY AND BASELESSLY CONCLUDING THAT THE VERIFICATION AND CERTIFICATE
AGAINST FORUM SHOPPING IN THE COMPLAINT WERE ALLEGEDLY "DEFECTIVE" IN THAT PABLO PUA, THE SALES
MANAGER, WAS SUPPOSEDLY "NOT AUTHORIZED" TO SIGN THE VERIFICATION AND CERTIFICATE OF NON-FORUM
SHOPPING FOR MANLAR RICE MILL, INC.
2. THE CONCLUSION OF THE COURT OF APPEALS THAT THE ALL-ENCOMPASSING PHRASE IN THE BOARD
RESOLUTION THAT "MR. PABLO PUA IS AUTHORIZED TO SIGN ANY DOCUMENT, PAPERS, FOR AND IN BEHALF OF
THE COMPANY, AND TO REPRESENT THE COMPANY IN ANY SUCH CASE OR CASES" IS ALLEGEDLY "NOT SUFFICIENT"
AUTHORITY FOR PABLO PUA TO SIGN THE VERIFICATION AND CERTIFICATE AGAINST FORUM SHOPPING IS
GROSSLY ERRONEOUS AND MANIFESTLY MISTAKEN BECAUSE IT IS DIRECTLY NEGATED AND DISPROVED BY THE
EXPRESS TERMS OF HIS AUTHORITY.
3. FURTHER, THE SERIOUS AND GLARING ERROR OF THE COURT OF APPEALS IN CONCLUDING THAT PABLO PUA
WAS ALLEGEDLY NOT AUTHORIZED TO SIGN THE VERIFICATION AND CERTIFICATE OF NON-FORUM SHOPPING HAD
BEEN PREVIOUSLY RAISED AND SQUARELY RESOLVED BY THE TRIAL COURT AND ITS RESOLUTION ON THIS ISSUE
HAD LONG BECOME FINAL AND EXECUTORY WITHOUT LOURDES L. DEYTO TAKING ANY APPELLATE REMEDY.
35
4. THE COURT OF APPEALS ALSO COMMITTED REVERSIBLE ERROR IN SAYING THAT "THERE WAS NO DOCUMENTARY
EVIDENCE TO PROVE ACTUAL DELIVERIES OF RICE" AS BASIS FOR THE DISMISSAL OF THE CASE BECAUSE THIS IS
MANIFESTLY MISTAKEN AND NEGATED BY THE RECORDS SINCE RESPONDENTS (MOTHER AND DAUGHTER) ISSUED
NINE (9) POSTDATED CHECKS TO PETITIONER THRU PABLO PUA IN THE TOTAL AMOUNT OF ₱3,843,2[2]0.00 IN
PAYMENT OF THE RICE DELIVERED TO THEM.
5. THE CONTRACTS OF SALE OF RICE WERE PERFECTED BY THE DELIVERY OF RICE TO RESPONDENTS MOTHER AND
DAUGHTER AND THEIR ISSUANCE OF NINE (9) POSTDATED CHECKS (₱3,843,220.00) AS PAYMENT THEREOF BY
RESPONDENTS, BUT THAT THE NINE (9) POSTDATED CHECKS OF RESPONDENTS WERE LATER DISHONORED.
6. THE SWEEPING STATEMENT OF THE COURT OF APPEALS THAT ALLEGEDLY "THE PARTICIPATION OF APPELLANT
(LOURDES L. DEYTO) TO WHATEVER BUSINESS TRANSACTIONS HER DAUGHTER (CO-RESPONDENT JENNELITA
DEYTO ANG) HAD WITH MANLAR RICE MILL INC. WAS NOT DULY PROVEN" IS NOT ONLY A PURE SPECULATION BUT
IS SQUARELY NEGATED AND DISPROVED BY THE OVERWHELMING EVIDENCE OF THE CONSPIRACY AND
COLLABORATIVE EFFORTS OF BOTH MOTHER AND DAUGHTER IN KNOWINGLY DEFRAUDING PETITIONER.25
Petitioner’s Arguments
In its Petition and Reply,26 Manlar insists that the CA’s findings and conclusions are not supported by the evidence on
record. On the procedural issue, it reiterates the trial court’s pronouncement that its subsequent submission – on June
7, 2001, or six months after the filing of Civil Case No. Q-00-42527 – of the notarized minutes of a special meeting of
its board of directors authorizing Pua to file and prosecute Civil Case No. Q-00-42527, effectively cured the defective
Complaint, or rendered the issue of lack of proper authority moot and academic, and should not result in the dismissal
of the case. Because Deyto did not question this ruling through the proper petition or appeal, it should stand; besides,
the trial court’s disposition on the matter is sound and just.
Next, Manlar disputes the CA ruling that Manlar failed to present documentary evidence to prove deliveries of rice to
Deyto, apart from that delivered to Ang in her personal capacity. It points to "compelling and convincing evidence" that
both Deyto and Ang induced it to deliver rice to them, and that both of them issued the subject postdated checks. It
claims that it was Deyto who delivered the checks to Pua at his office in Manila; that Deyto induced Pua to deliver rice
to respondents on the assurance that Deyto had extensive assets, financial capacity and a thriving business; and that
Deyto provided Pua with copies of JD Grains Center’s certificate of registration, business permit, business card, and
certificates of title covering property belonging to Deyto.
Manlar adds that Deyto disposed of some of her personal properties – specifically delivery/cargo trucks – in fraud of
her creditors, including Manlar. It is also argued that the fact that Deyto was in possession of Ang’s negotiated checks
proved that both of them connived to defraud Manlar by using the said checks to convince and induce Pua to contract
with them.
Manlar goes on to argue that Ang and another of Deyto’s children, Judith Ang Yu (Judith), were charged and the latter
convicted of estafa for defrauding another rice trader, a certain Sergio Casaclang, of ₱3,800,000.00 – attaching a
certified true copy of the Decision of Branch 215 of the RTC of Quezon City in Criminal Case No. Q-01-105698, indicating
that Judith was sentenced to three months of arresto mayor and to pay a fine and indemnity.
Next, Manlar argues that it is not necessary to further show proof of deliveries of rice to Deyto and Ang in order to
prove the existence of their obligation; the issuance of the subject postdated checks as payment established the
obligation.
Manlar thus prays that the Court annul and set aside the assailed CA dispositions and thus reinstate the trial court’s
November 22, 2007 Decision finding Deyto liable under the rice supply contract.
Respondent’s Arguments
Praying that the Petition be denied, respondent Deyto in her Comment 27 essentially argues that petitioner Manlar’s
claims are "products of pure imagination", having no factual and legal basis, and that Manlar’s impleading her is simply
a desperate strategy or attempt to recover its losses from her, considering that Ang can no longer be located.
Furthermore, Deyto claims that Manlar’s alleged rice deliveries are not covered by sufficient documentary evidence,
and while it may appear that Ang had transacted with Manlar, she did so in her sole capacity; thus, Deyto may not be
held liable under a transaction in which she took no part.
Deyto adds that Pua’s basis for claiming that deliveries were made at her Bulusan Street residence is unfounded,
considering that it springs from hearsay, or on the mere affirmation of Manlar’s drivers – who were not presented in
court to testify on such fact. Pua himself had no personal knowledge of such fact, and thus could not be believed in
testifying that rice was indeed delivered to Deyto at her Bulusan Street residence. She argues further that overall, Pua
– Manlar’s lone witness – proved to be an unreliable witness, constantly changing his testimony when the
inconsistencies of his previous declarations were called out.
Finally, Deyto reiterates the CA ruling that Manlar’s Complaint in Civil Case No. Q-00-42527 was defective for lack of
the required board resolution authorizing Pua to sign the verification and certification against forum shopping,
characterizing the belated submission of the required resolution six months later as a mere afterthought.
Our Ruling
The Court denies the Petition.
It is a basic rule in evidence that he who alleges must prove his case or claim by the degree of evidence required.
x x x Ei incumbit probatio qui dicit, non qui negat. This Court has consistently applied the ancient rule that "if the
plaintiff, upon whom rests the burden of proving his cause of action, fails to show in a satisfactory manner the facts
upon which he bases his claim, the defendant is under no obligation to prove his exception or defense."28
In civil cases, the quantum of proof required is preponderance of evidence, which connotes "that evidence that is of
greater weight or is more convincing than that which is in opposition to it. It does not mean absolute truth; rather, it
means that the testimony of one side is more believable than that of the other side, and that the probability of truth is
on one side than on the other."29
The CA is correct in concluding that there is no legal basis to hold Deyto solidarily liable with Ang for what the latter
may owe Manlar. The evidence does not support Manlar’s view that both Deyto and Ang contracted with Manlar for the
delivery of rice on credit; quite the contrary, the preponderance of evidence indicates that it was Ang alone who entered
into the rice supply agreement with Manlar. Pua’s own direct testimony indicated that whenever rice deliveries were
made by Manlar, Deyto was not around; that it was solely Ang who issued the subject checks and delivered them to
Pua or Manlar. On cross-examination, he testified that no rice deliveries were in fact made by Manlar at Deyto’s Bulusan
Street residence; that although Deyto guaranteed Ang’s checks, this guarantee was made verbally; and that while he
ordered Manlar’s drivers to deliver rice at Deyto’s residence at Bulusan Street, the deliveries would actually end up at
Ang’s Sabucoy residence.
36
The documentary evidence, on the other hand, shows that the subject checks were issued from a bank account in
Chinabank del Monte branch belonging to Ang alone. They did not emanate from an account that belonged to both Ang
and Deyto. This is supported by no less than the testimony of Chinabank del Monte branch Operations Head
Petallano.1âwphi1
The evidence on record further indicates that Deyto was an old lady who owned vast tracts of land in Isabela province,
and other properties in Metro Manila; that she is a reputable businessperson in Isabela; that Ang originally worked for
JD Grains Center, but was removed in 1997 for failure to remit collections; that as early as June 2000, or prior to the
alleged transaction with Manlar, Ang and Deyto were no longer on good terms as a result of Ang’s activities; that Deyto
took custody of one of Ang’s children, who was previously recovered from a kidnapping perpetrated by no less than
Ang’s best friend; and that Ang appears to have abandoned her own family and could no longer be located. This shows
not only what kind of person Ang is; it likewise indicates the improbability of Deyto’s involvement in Ang’s activities,
noting her age, condition, reputation, and the extent of her business activities and holdings.
This Court cannot believe Manlar’s claims that Deyto induced Pua to transact with her and Ang by providing him with
copies of JD Grains Center’s certificate of registration, business permit, business card, and certificates of title covering
property belonging to Deyto to show her creditworthiness, extensive assets, financial capacity and a thriving business.
The documents presented by Manlar during trial – copies of JD Grains Center’s certificate of registration, business
permit, and certificates of title covering Deyto’s landholdings – are public documents which Manlar could readily obtain
from appropriate government agencies; it is improbable that Deyto provided Manlar with copies of these documents in
order to induce the latter to contract with her. Considering that both Manlar and Deyto were in the same line of business
in the same province, it may be said that Manlar knew Deyto all along without the latter having to supply it with actual
proof of her creditworthiness.
The allegations that Deyto guaranteed Ang’s checks and that she consented to be held solidarily liable with Ang under
the latter’s rice supply contract with Manlar are hardly credible. Pua in fact admitted that this was not in writing, just
a verbal assurance. But this will not suffice. "Well-entrenched is the rule that solidary obligation cannot lightly be
inferred. There is a solidary liability only when the obligation expressly so states, when the law so provides or when
the nature of the obligation so requires."30
What this Court sees is an attempt to implicate Deyto in a transaction between Manlar and Ang so that the former may
recover its losses, since it could no longer recover them from Ang as a result of her absconding; this conclusion is
indeed consistent with what the totality of the evidence on record appears to show. This, however, may not be allowed.
As a general rule, a contract affects only the parties to it, and cannot be enforced by or against a person who is not a
party thereto. "It is a basic principle in law that contracts can bind only the parties who had entered into it; it cannot
favor or prejudice a third person."31 Under Article 1311 of the Civil Code, contracts take effect only between the parties,
their assigns and heirs. Thus, Manlar may sue Ang, but not Deyto, who the Court finds to be not a party to the rice
supply contract.
Having decided the case in the foregoing manner, the Court finds no need to resolve the other issues raised by the
parties.
WHEREFORE, the Petition is DENIED. The assailed dispositions of the Court of Appeals are AFFIRMED.
[G.R. No. 82036. May 22, 1997.]
TRAVELLERS INSURANCE & SURETY CORPORATION, Petitioner, v. HON. COURT OF APPEALS and VICENTE
MENDOZA, Respondents.
SYLLABUS
1. COMMERCIAL LAW; INSURANCE; CONTRACT OR POLICY; NECESSITY OF AFFIXING A COPY THEREOF TO
COMPLAINT; CASE AT BENCH. — When private respondent filed his amended complaint to implead petitioner as party
defendant and therein alleged that petitioner was the third-party liability insurer of the Lady Love taxicab that fatally
hit private respondent’s mother, private respondent did not attach a copy of the insurance contract to the amended
complaint. Private respondent does not deny this omission. It is significant to point out at this juncture that the right
of a third person to sue the insurer depends on whether the contract of insurance is intended to benefit third persons
also or only the insured. . . Since private respondent failed to attach a copy of the insurance contract to his complaint,
the trial court could not have been able to apprise itself of the real nature and pecuniary limits of petitioner’s liability.
More importantly, the trial court could not have possibly ascertained the right of private respondent as third person to
sue petitioner as insurer of the Lady Love taxicab because the trial court never saw nor read the insurance contract
and learned of its terms and conditions. Petitioner, understandably, did not volunteer to present any insurance contract
covering the Lady Love taxicab that fatally hit private respondent’s mother, considering that petitioner precisely
presented the defense of lack of insurance coverage before the trial court. Neither did the trial court issue a subpoena
duces tecum to have the insurance contract produced before it under pain of contempt. We thus find hardly a basis in
the records for the trial court to have validly found petitioner liable jointly and severally with the owner and the driver
of the Lady Love taxicab, for damages accruing to private Respondent.
2. ID.; ID.; ID.; LIABILITY BASED ON CONTRACT DISTINGUISHED FROM LIABILITY BASED ON TORTS AND QUASI-
DELICTS; CASE AT BAR. — Apparently, the trial court did not distinguish between the private respondent’s cause of
action against the owner and the driver of the Lady Love taxicab and his cause of action against petitioner. The former
is based on torts and quasi-delicts while the latter is based on contract. Confusing these two sources of obligations as
they arise from the same act of the taxicab fatally hitting private respondent’s mother, and in the face of overwhelming
evidence of the reckless imprudence of the driver of the Lady Love taxicab, the trial court brushed aside its ignorance
of the terms and conditions of the insurance contract and forthwith found all three — the driver of the taxicab, the
owner of the taxicab, and the alleged insurer of the taxicab — jointly and severally liable for actual, moral and
exemplary damages as well as attorney’s fees and litigation expenses. This is clearly a misapplication of the law by the
trial court and respondent appellate court grievously erred in not having reversed the trial court on this ground.
3. ID.; ID.; ID.; INSURER’S LIABILITY BASED THEREON LIMITED TO P50,000.00 IN CASE AT BAR. — Assuming
arguendo that petitioner is the insurer of the Lady Love taxicab in question, its liability is limited to only P50,000.00,
this being its standard amount of coverage in vehicle insurance policies. It bears repeating that no copy of the insurance
contract was ever proffered before the trial court by the private respondent, notwithstanding knowledge of the fact
that the latter’s complaint against petitioner is one under a written contract. Thus, the trial court proceeded to hold
petitioner liable for an award of damages exceeding its limited liability of P50,000.00. This only shows beyond doubt
that the trial court was under the erroneous presumption that petitioner could be found liable absent proof of contract
and based merely on the proof of reckless imprudence on the part of the driver of the Lady Love taxicab that fatally
hit private respondent’s mother.
4. ID.; ID.; NOTICE OF CLAIM; AN INDISPENSABLE PRE-REQUISITE TO SUE UNDER AN INSURANCE CONTRACT;
REASONS; CASE AT BENCH. — Petitioner did not tire in arguing before the trial court and the respondent appellate
court that, assuming arguendo that it had issued the insurance contract over the Lady Love taxicab, private
respondent’s cause of action against petitioner did not successfully accrue because he failed to file with petitioner a
37
written notice of claim within six (6) months from the date of the accident as required by Section 384 of the Insurance
Code. . . We have certainly ruled with consistence, that the prescriptive period to bring suit in court under an insurance
policy, begins to run front the date of the insurer’s rejection of the claim filed by the insured, the beneficiary or any
person claiming under an insurance contract. This ruling is premised upon the compliance by the persons suing under
an insurance contract, with the indispensable requirement of having filed the written claim mandated by Section 384
of the Insurance Code before and after its amendment. Absent such written claim filed by the person suing under an
insurance contract, no cause of action accrues under such insurance contract, considering that it is the rejection of that
claim that triggers the running of the one-year prescriptive period to bring suit in court, and there can be no opportunity
for the insurer to even reject a claim if none has been filed in the first place, as in the instant case.
DECISION
The petition herein seeks the review and reversal of the decision 1 of respondent Court of Appeals 2 affirming in toto
the judgment 3 of the Regional Trial Court 4 in an action for damages 5 filed by private respondent Vicente Mendoza,
Jr. as heir of his mother who was killed in a vehicular accident.
Before the trial court, the complainant lumped the erring taxicab driver, the owner of the taxicab, and the alleged
insurer of the vehicle which featured in the vehicular accident into one complaint. The erring taxicab was allegedly
covered by a third-party liability insurance policy issued by petitioner Travellers Insurance & Surety Corporation. cdtech
The evidence presented before the trial court established the following facts:jgc:chanrobles.com.ph
"At about 5:30 o’clock in the morning of July 20, 1980, a 78-year old woman by the name of Feliza Vineza de Mendoza
was on her way to hear mass at the Tayuman Cathedral. While walking along Tayuman corner Gregorio Perfecto
Streets, she was bumped by a taxi that was running fast. Several persons witnessed the accident, among whom were
Rolando Marvilla, Ernesto Lopez and Eulogio Tabalno. After the bumping, the old woman was seen sprawled on the
pavement. Right away, the good Samaritan that he was, Marvilla ran towards the old woman and held her on his lap
to inquire from her what had happened, but obviously she was already in shock and could not talk. At this moment, a
private jeep stopped. With the driver of that vehicle, the two helped board the old woman on the jeep and brought her
to the Mary Johnston Hospital in Tondo.
. . . Ernesto Lopez, a driver of a passenger jeepney plying along Tayuman Street from Pritil, Tondo, to Rizal Avenue
and vice-versa, also witnessed the incident. It was on his return trip from Rizal Avenue when Lopez saw the plaintiff
and his brother who were crying near the scene of the accident. Upon learning that the two were the sons of the old
woman, Lopez told them what had happened. The Mendoza brothers were then able to trace their mother at the Mary
Johnston Hospital where they were advised by the attending physician that they should bring the patient to the National
Orthopedic Hospital because of her fractured bones. Instead, the victim was brought to the U.S.T. Hospital where she
expired at 9:00 o’clock that same morning. Death was caused by ‘traumatic shock’ as a result of the severe injuries
she sustained. . . .
. . . The evidence shows that at the moment the victim was bumped by the vehicle, the latter was running fast, so
much so that because of the strong impact the old woman was thrown away and she fell on the pavement. . . . In
truth, in that related criminal case against defendant Dumlao . . . the trial court found as a fact that therein accused
‘was driving the subject taxicab in a careless, reckless and imprudent manner and at a speed greater than what was
reasonable and proper without taking the necessary precaution to avoid accident to persons . . . considering the
condition of the traffic at the place at the time aforementioned’. . . Moreover, the driver fled from the scene of the
accident and without rendering assistance to the victim. . . .
. . . Three (3) witnesses who were at the scene at the time identified the taxi involved, though not necessarily the
driver thereof. Marvilla saw a lone taxi speeding away just after the bumping which, when it passed by him, said
witness noticed to be a Lady Love Taxi with Plate No. 438, painted maroon, with baggage bar attached on the baggage
compartment and with an antenae[sic] attached at the right rear side. The same descriptions were revealed by Ernesto
Lopez, who further described the taxi to have . . . reflectorized decorations on the edges of the glass at the back. . . .
A third witness in the person of Eulogio Tabalno . . . made similar descriptions although, because of the fast speed of
the taxi, he was only able to detect the last digit of the plate number which is ‘8’. . . . [T]he police proceeded to the
garage of Lady Love Taxi and then and there they took possession of such a taxi and later impounded it in the
impounding area of the agency concerned. . . . [T]he eyewitnesses . . . were unanimous in pointing to that Lady Love
Taxi with Plate No. 438, obviously the vehicle involved herein.
. . . During the investigation, defendant Armando Abellon, the registered owner of Lady Love Taxi bearing No. 438-HA
Pilipinas Taxi 1980, certified to the fact ‘that the vehicle was driven last July 20, 1980 by one Rodrigo Dumlao . . .’ It
was on the basis of this affidavit of the registered owner that caused the police to apprehend Rodrigo Dumlao, and
consequently to have him prosecuted and eventually convicted of the offense . . . [S]aid Dumlao absconded in that
criminal case, specially at the time of the promulgation of the judgment therein so much so that he is now a fugitive
from justice." 6
Private respondent filed a complaint for damages against Armando Abellon as the owner of the Lady Love Taxi and
Rodrigo Dumlao as the driver of the Lady Love taxicab that bumped private respondent’s mother. Subsequently, private
respondent amended his complaint to include petitioner as the compulsory insurer of the said taxicab under Certificate
of Cover No. 1447785-3.
After trial, the trial court rendered judgment in favor of private respondent, the dispositive portion of which reads:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff, or more particularly the ‘Heirs of the late Feliza
Vineza de Mendoza,’ and against defendants Rodrigo Dumlao, Armando Abellon and Travellers Insurance and Surety
Corporation, by ordering the latter to pay, jointly and severally, the former the following amounts:
(a) The sum of P2,924.70, as actual and compensatory damages, with interest thereon at the rate of 12% per
annum from October 17, 1980, when the complaint was filed, until the said amount is fully paid;
(b) P30,000.00 as death indemnity;
(c) P25,000.00 as moral damages;
(d) P10,000.00 as by way of corrective or exemplary damages, and
(e) Another P10,000.00 by way of attorney’s fees and other litigation expenses.
Defendants are further ordered to pay, jointly and severally, the costs of this suit.
Petitioner appealed from the aforecited decision to the respondent Court of Appeals. The decision of the trial court was
affirmed by respondent appellate court. Petitioner’s Motion for Reconsideration 8 of September 22, 1987 was denied
in a Resolution 479 dated February 9, 1988.
Hence this petition.
Petitioner mainly contends that it did not issue an insurance policy as compulsory insurer of the Lady Love Taxi and
that, assuming arguendo that it had indeed covered said taxicab for third-party liability insurance, private respondent
failed to file a written notice of claim with petitioner as required by Section 384 of P.D. No. 612, otherwise known as
the Insurance Code.
We find the petition to be meritorious.
38
When private respondent filed his amended complaint to implead petitioner as party defendant and therein alleged that
petitioner was the third-party liability insurer of the Lady Love taxicab that fatally hit private respondent’s mother,
private respondent did not attach a copy of the insurance contract to the amended complaint. Private respondent does
not deny this omission.
It is significant to point out at this juncture that the right of a third person to sue the insurer depends on whether the
contract of insurance is intended to benefit third persons also or only the insured.
" [A]" policy . . . whereby the insurer agreed to indemnify the insured ‘against all sums . . . which the Insured shall
become legally liable to pay in respect of: (a) death of or bodily injury to any person . . . is one for indemnity against
liability; from the fact then that the insured is liable to the third person, such third person is entitled to sue the insurer.
The right of the person injured to sue the insurer of the party at fault (insured), depends on whether the contract of
insurance is intended to benefit third persons also or on the insured. And the test applied has been this: Where the
contract provides for indemnity against liability to third persons, then third persons to whom the insured is liable can
sue the insurer. Where the contract is for indemnity against actual loss or payment, then third persons cannot proceed
against the insurer, the contract being solely to reimburse the insured for liability actually discharged by him thru
payment to third persons, said third persons’ recourse being thus limited to the insured alone." 10
Since private respondent failed to attach a copy of the insurance contract to his complaint, the trial court could not
have been able to apprise itself of the real nature and pecuniary limits of petitioner’s liability. More importantly, the
trial court could not have possibly ascertained the right of private respondent as third person to sue petitioner as
insurer of the Lady Love taxicab because the trial court never saw nor read the insurance contract and learned of its
terms and conditions.
Petitioner, understandably, did not volunteer to present any insurance contract covering the Lady Love taxicab that
fatally hit private respondent’s mother, considering that petitioner precisely presented the defense of lack of insurance
coverage before the trial court. Neither did the trial court issue a subpoena duces tecum to have the insurance contract
produced before it under pain of contempt.
We thus find hardly a basis in the records for the trial court to have validly found petitioner liable jointly and severally
with the owner and the driver of the Lady Love taxicab, for damages accruing to private Respondent.
Apparently, the trial court did not distinguish between the private respondent’s cause of action against the owner and
the driver of the Lady Love taxicab and his cause of action against petitioner. The former is based on torts and quasi-
delicts while the latter is based on contract. Confusing these two sources of obligations as they arise from the same
act of the taxicab fatally hitting private respondent’s mother, and in the face of overwhelming evidence of the reckless
imprudence of the driver of the Lady Love taxicab, the trial court brushed aside its ignorance of the terms and conditions
of the insurance contract and forthwith found all three — the driver of the taxicab, the owner of the taxicab, and the
alleged insurer of the taxicab — jointly and severally liable for actual, moral and exemplary damages as well as
attorney’s fees and litigation expenses. This is clearly a misapplication of the law by the trial court, and respondent
appellate court grievously erred in not having reversed the trial court on this ground.chanrobles law library
"While it is true that where the insurance contract provides for indemnity against liability to third persons, such third
persons can directly sue the insurer, however, the direct liability of the insurer under indemnity contracts against third-
party liability does not mean that the insurer can be held solidarily liable with the insured and/or the other parties
found at fault. The liability of the insurer is based on contract; that of the insured is based on tort." 11
Applying this principle underlying solidary obligation and insurance contracts, we ruled in one case that:
"In solidary obligation, the creditor may enforce the entire obligation against one of the solidary debtors. On the
other hand, insurance is defined as ‘a contract whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event.’
In the case at bar, the trial court held petitioner together with respondents Sio Choy and Leon Rice Mills Inc. solidarily
liable to respondent Vallejos for a total amount of P29,103.00, with the qualification that petitioner’s liability is only up
to P20,000.00. In the context of a solidary obligation, petitioner may be compelled by respondent Vallejos to pay the
entire obligation of P29,103.00, notwithstanding the qualification made by the trial court. But, how can petitioner be
obliged to pay the entire obligation when the amount stated in its insurance policy with respondent Sio Choy for
indemnity against third-party liability is only P20,000.00? Moreover, the qualification made in the decision of the trial
court to the effect that petitioner is sentenced to pay up to P20,000.00 only when the obligation to pay P29,103.00 is
made solidary is an evident breach of the concept of a solidary obligation." 12
The above principles take on more significance in the light of the counter-allegation of petitioner that, assuming
arguendo that it is the insurer of the Lady Love taxicab in question, its liability is limited to only P50,000.00, this being
its standard amount of coverage in vehicle insurance policies. It bears repeating that no copy of the insurance contract
was ever proffered before the trial court by the private respondent, notwithstanding knowledge of the fact that the
latter’s complaint against petitioner is one under a written contract. Thus, the trial court proceeded to hold petitioner
liable for an award of damages exceeding its limited liability of P50,000.00. This only shows beyond doubt that the trial
court was under the erroneous presumption that petitioner could be found liable absent proof of the contract and based
merely on the proof of reckless imprudence on the part of the driver of the Lady Love taxicab that fatally hit private
respondent’s mother.
II
Petitioner did not tire in arguing before the trial court and the respondent appellate court that, assuming arguendo that
it had issued the insurance contract over the Lady Love taxicab, private respondent’s cause of action against petitioner
did not successfully accrue because he failed to file with petitioner a written notice of claim within six (6) months from
the date of the accident as required by Section 384 of the Insurance Code.
At the time of the vehicular incident which resulted in the death of private respondent’s mother, during which time the
Insurance Code had not yet been amended by Batas Pambansa (B.P.) Blg. 874, Section 384 provided as follows:
"Any person having any claim upon the policy issued pursuant to this chapter shall, without any unnecessary delay,
present to the insurance company concerned a written notice of claim setting forth the amount of his loss, and/or
the nature, extent and duration of the injuries, sustained as certified by a duly licensed physician. Notice of claim
must be filed within six months from date of the accident, otherwise, the claim shall be deemed waived. Action or
suit for recovery of damage due to loss or injury must be brought in proper cases, with the Commission or the Courts
within one year from date of accident, otherwise the claimant’s right of action shall prescribe" [Emphasis supplied].
In the landmark case of Summit Guaranty and Insurance Co., Inc. v. De Guzman, 13 we ruled that the one year
prescription period to bring suit in court against the insurer should be counted from the time that the insurer rejects
the written claim filed therewith by the insured, the beneficiary or the third person interested under the insurance
policy. We explained:
"It is very obvious that petitioner company is trying to use Section 384 of the Insurance Code as a cloak to hide itself
from its liabilities. The facts of these cases evidently reflect the deliberate efforts of petitioner company to prevent
the filing of a formal action against it. Bearing in mind that if it succeeds in doing so until one year lapses from the
date of the accident it could set up the defense of prescription, petitioner company made private respondents believe
that their claims would be settled in order that the latter will not find it necessary to immediately bring suit. In
39
violation of its duties to adopt and implement reasonable standards for the prompt investigation of claims and to
effectuate prompt, fair and equitable settlement of claims, and with manifest bad faith, petitioner company devised
means and ways of stalling the settlement proceedings. . . . [No] steps were taken to process the claim and no
rejection of said claim was ever made even if private respondent had already complied with all the requirements. . .
.
This Court has made the observation that some insurance companies have been inventing excuses to avoid their just
obligations and it is only the State that can give the protection which the insuring public needs from possible abuses
of the insurers." 14
It is significant to note that the aforecited Section 384 was amended by B.P. Blg. 874 to categorically provide that
"action or suit for recovery of damage due to loss or injury must be brought in proper cases, with the Commissioner
or the Courts within one year from denial of the claim, otherwise the claimant’s right of action shall prescribe"
[Emphasis ours]. 15
We have certainly ruled with consistency that the prescriptive period to bring suit in court under an insurance policy,
begins to run from the date of the insurer’s rejection of the claim filed by the insured, the beneficiary or any person
claiming under an insurance contract. This ruling is premised upon the compliance by the persons suing under an
insurance contract, with the indispensable requirement of having filed the written claim mandated by Section 384 of
the Insurance Code before and after its amendment. Absent such written claim filed by the person suing under an
insurance contract, no cause of action accrues under such insurance contract, considering that it is the rejection of that
claim that triggers the running of the one-year prescriptive period to bring suit in court, and there can be no opportunity
for the insurer to even reject a claim if none has been filed in the first place, as in the instant case.
"The one-year period should instead be counted from the date of rejection by the insurer as this is the time when the
cause of action accrues. . .
In Eagle Star Insurance Co., Ltd., Et. Al. v. Chia Yu, this Court ruled:chanrob1es virtual 1aw library
‘The plaintiff’s cause of action did not accrue until his claim was finally rejected by the insurance company. This is
because, before such final rejection, there was no real necessity for bringing suit.’
The philosophy of the above pronouncement was pointed out in the case of ACCFA v. Alpha Insurance and Surety Co.,
viz.:
‘Since a cause of action requires, as essential elements, not only a legal right of the plaintiff and a correlative
obligation of the defendant but also an act or omission of the defendant in violation of said legal right, the cause of
action does not accrue until the party obligated refuses, expressly or impliedly, to comply with its duty’." 16
When petitioner asseverates, thus, that no written claim was filed by private respondent and rejected by petitioner,
and private respondent does not dispute such asseveration through a denial in his pleadings, we are constrained to
rule that respondent appellate court committed reversible error in finding petitioner liable under an insurance contract
the existence of which had not at all been proven in court. Even if there were such a contract, private respondent’s
cause of action can not prevail because he failed to file the written claim mandated by Section 384 of the Insurance
Code. He is deemed, under this legal provision, to have waived his rights as against petitioner-insurer.
WHEREFORE, the instant petition is HEREBY GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 09416
and the decision of the Regional Trial Court in Civil Case No. 135486 are REVERSED and SET ASIDE insofar as Travellers
Insurance & Surety Corporation was found jointly and severally liable to pay actual, moral and exemplary damages,
death indemnity, attorney’s fees and litigation expenses in Civil Case No. 135486. The complaint against Travellers
Insurance & Surety Corporation in said case is hereby ordered dismissed.
G.R. No. 193426, September 29, 2014
SUBIC BAY LEGEND RESORTS AND CASINOS, INC., Petitioner, v. BERNARD C. FERNANDEZ, Respondent.
This Petition for Review on Certiorari1 assails the April 27, 2010 Decision2 and August 24, 2010 Resolution3 of the
Court of Appeals (CA) in CA-G.R. CV No. 91758, entitled “Bernard C. Fernandez, Plaintiff-Appellee, versus Subic Bay
Legend Resorts and Casinos, Inc., Defendant-Appellant,” which affirmed in toto the May 17, 2006 Decision4 of the
Regional Trial Court (RTC) of Olongapo City, Branch 74, in Civil Case No. 237-0-97.
Factual Antecedents
Petitioner Subic Bay Legend Resorts And Casinos, Inc., a duly organized and existing corporation operating under
Philippine laws, operates the Legenda Hotel and Casino (Legenda) located in the Subic Bay Freeport Zone in Zambales.
On the other hand, respondent Bernard C. Fernandez is the plaintiff in Civil Case No. 237-0-97 prosecuted against
petitioner in Olongapo RTC.
As determined by the CA, the facts of the case are as follows:ChanRoblesVirtualawlibrary
At around eleven o’clock in the evening of 6 June 1997, the appellee’s5 brother[,] Ludwin Fernandez[,] visited the
Legenda Hotel and Casino x x x owned and operated by the appellant6 and located along the Waterfront Road, Subic
Bay Freeport Zone. Legenda had strategically installed several closed-circuit television (CCTV) cameras as part of
security measures required by its business. The monitors revealed that Ludwin changed x x x $5,000.00 worth of chips
into smaller denominations. Legenda admitted in its brief that its surveillance staff paid close attention to Ludwin
simply because it was “unusual” for a Filipino to play using dollar-denominated chips. After Ludwin won $200.00 in a
game of baccarat, he redeemed the value of chips worth $7,200.00. A review of the CCTV recordings showed that the
incident was not the first time Ludwin visited the Casino, as he had also been there on 5 June 1997.
An operation was launched by Legenda to zero-in on Ludwin whose picture was furnished its security section. Thus,
unbeknownst to him, he was already closely watched on 13 June 1997 when he went with another brother, Deoven[,]
to the casino at around the same time or at 11:17 p.m. After playing (and losing $100.00) only one round of baccarat,
the siblings had their chips encashed at two separate windows. Since the cashiers were apprised of a supposed
irregularity, they “froze” the transaction.
Shortly thereafter, Legenda’s internal security officers accosted Ludwin and Deoven and ordered them to return the
cash and they complied without ado because they were being pulled away. The two were eventually escorted to private
rooms where they were separately interrogated about the source of the chips they brought. They were held for about
seven hours until the wee hours of the morning, without food or sleep. The ultimatum was simple: they confess that
the chips were given by a certain employee, Michael Cabrera, or they would not be released from questioning. The
same line of questioning confronted them when they were later turned-over for blotter preparation to the Intelligence
and Investigation Office of the Subic Bay Metropolitan Authority (IIO SBMA). Finally, the brothers succumbed to
Legenda’s instruction to execute a joint statement implicating Cabrera as the illegal source of the chips. Due to hunger
pangs and fatigue, they did not disown the statement even when they subscribed the same before the prosecutor in
whose office they were [later] brought. On the other hand, they signed for basically the same reason a document
purporting to show that they were “released to [their] brother’s custody in good condition.” At the time, Deoven was
about 21 years old, in his second year of engineering studies and was not familiar with the so-called “estafa” with which
the security personnel threatened to sue him for; although he was quite aware of the consequences of a crime such as
direct assault because he had previously been convicted thereof. About two weeks later, Deoven executed a retraction
in Baguio City where he took up his engineering course.7
40
On July 1, 1997, respondent filed Civil Case No. 237-0-97 for recovery of sum of money with damages against
petitioner, on the premise that on June 13, 1997, he went to Legenda with his brothers Ludwin and Deoven; that he
handed over Legenda casino chips worth US$6,000.00, which belonged to him, to his brothers for the latter to use at
the casino; that petitioner accosted his brothers and unduly and illegally confiscated his casino chips equivalent to
US$5,900.00; and that petitioner refused and continues to refuse to return the same to him despite demand. His
Complaint8 prayed for the return of the casino chips and an award of P50,000.00 moral damages, P50,000.00
exemplary damages, P30,000.00 attorney’s fees, P20,000.00 litigation expenses, and costs.
Petitioner’s Answer with Compulsory Counterclaim9 essentially alleged that right after Ludwin and Deoven’s
transactions with the Legenda cashier were frozen on June 13, 1997, they voluntarily agreed to proceed to the Legenda
security office upon invitation, where Ludwin voluntarily informed security officers that it was a certain Michael Cabrera
(Cabrera) – a Legenda table inspector at the time – who gave him the casino chips for encashment, taught him how
to play baccarat and thereafter encash the chips, and rewarded him with P1,000.00 for every $1,000.00 he encashed;
that Ludwin pointed to a picture of Cabrera in a photo album of casino employees shown to him; that Ludwin and
Deoven were then brought to the IIO SBMA, where they reiterated their statements made at the Legenda security
office; that they volunteered to testify against Cabrera; that respondent himself admitted that it was Cabrera who gave
him the casino chips; that Ludwin and Deoven voluntarily executed a joint affidavit before the Olongapo City
Prosecutor’s Office, which they subsequently recanted; that respondent had no cause of action since the confiscated
casino chips worth US$5,900.00 were stolen from it, and thus it has the right to retain them. By way of counterclaim,
petitioner sought an award of P1 million moral damages, P1 million exemplary damages, and P.5 million attorney’s
fees and litigation expenses.
Respondent filed his Answer10 to petitioner’s counterclaim.
Ruling of the Regional Trial Court
After pre-trial and trial, the trial court rendered its May 17, 2006 Decision, which decreed as follows:
WHEREFORE, finding that the evidence preponderates in favor of the plaintiff, judgment is rendered against the defendant ordering it
to:ChanRoblesVirtualawlibrary
1) Return to plaintiff casino chips worth USD $5,900.00 or its equivalent in Philippine Peso at the rate of P38.00 to USD $1 in 1997.
2) Pay plaintiff attorney’s fees in the amount of P30,000.00
3) [Pay] [c]ost of this suit.
In arriving at the above conclusion, the trial court held:ChanRoblesVirtualawlibrary
The primordial issue is whether or not plaintiff can be considered the lawful owner of the USD $5,900 worth of casino
chips that were confiscated.
There is no dispute that the subject chips were in the possession of the plaintiff. He claims he got hold of them as
payment for car services he rendered to a Chinese individual. Defendant however, contends that said chips were stolen
from the casino and it is the lawful owner of the same.
The onus fell on defendant to prove that the casino chips were stolen. The proof adduced however, is wanting. The
statements of Deoven and Ludwin C. Fernandez, confessing to the source of the chips were recanted hence, have little
probative value. The testimony of defendant’s witnesses narrated defendant’s action responding to the suspicious
movements of the Fernandez brothers based on surveillance tapes. The tapes, however, do not show how these
persons got hold of the chips. The alleged source in the person of Mike Cabrera, a table inspector of the casino[,] was
based on the recanted declarations of the brothers. No criminal charge was shown to have been filed against him nor
the plaintiff and his brothers. Neither was there an explanation given as to how those chips came into the possession
of Mike Cabrera much less that he passed them on to the brothers for the purpose of encashing and dividing the
proceeds amongst themselves. All told therefore, there is no direct evidence to prove the theory of the defendant and
the circumstantial evidence present is, to the mind of the court, not sufficient to rebut the legal presumption that a
person in possession of personal property is the lawful owner of the same (Art. 559, Civil Code of the Philippines).12
Ruling of the Court of Appeals
Petitioner appealed the May 17, 2006 Decision of the trial court, arguing that Ludwin and Deoven’s admission in their
joint affidavit before the Olongapo City Prosecutor’s Office that it was Cabrera who gave them the casino chips strongly
indicates that the chips were stolen from Legenda; that the subsequent recantation by Ludwin and Deoven of their
joint affidavit should be looked upon with disfavor, given that recanted testimony is unreliable and recantations can be
easily secured from poor and ignorant witnesses and for monetary consideration or through intimidation; that
respondent’s explanation that he gave the chips to his brothers Ludwin and Deoven for them to play in the casino is
highly doubtful; that the true purpose of Ludwin and Deoven was to encash the stolen chips; that no force or
intimidation attended the treatment accorded Ludwin and Deoven when they were accosted and asked to explain their
possession of the chips; and that the trial court erred in awarding attorney’s fees and costs for the filing of a baseless
suit solely aimed at unjustly enriching respondent at petitioner’s expense.
On April 27, 2010, the CA issued the assailed Decision which affirmed the trial court’s May 17, 2006 Decision.
Petitioner’s Motion for Reconsideration was rebuffed as well.
In deciding against petitioner, the CA held that, applying Article 559 of the Civil Code,13 respondent had the legal
presumption of title to or ownership of the casino chips. This conclusion springs from respondent’s admission during
trial that the chips represented payment by a Chinese customer for services he rendered to the latter in his car shop.
The CA added that since respondent became the owner of the chips, he could very well have given them to Ludwin and
Deoven, who likewise held them as “possessors in good faith and for value” and with “presumptive title” derived from
the respondent. On the other hand, petitioner failed to convincingly show that the chips were stolen; for one, it did
not even file a criminal case against the supposed mastermind, Cabrera – nor did it charge Ludwin or Deoven – for the
alleged theft or taking of its chips.
The CA likewise held that Ludwin’s and Deoven’s statements and admissions at the Legenda security office are
inadmissible because they were obtained in violation of their constitutional rights: they were held in duress, denied the
right to counsel and the opportunity to contact respondent, and deprived of sleep, which is one of the “more subtler
[sic] techniques of physical and psychological torture to coerce a confession.”14 It found that the actions and methods
of the Legenda security personnel in detaining and extracting confessions from Ludwin and Deoven were illegal and in
gross violation of Ludwin’s and Deoven’s constitutional rights.15cralawred
Finally, the CA held that petitioner was guilty of bad faith in advancing its theory and claim against respondent by
unduly accusing him of dealing in stolen casino chips, which thus entitles respondent to the reduced award of attorney’s
fees in the amount of P30,000.00.
Issues
Petitioner raises the following issues:ChanRoblesVirtualawlibrary
a) The Honorable Court seriously erred in ruling that the recanted statements of Deoven Fernandez and Ludwin C.
Fernandez have [no] probative value;
b) The Honorable Court seriously erred in ruling that the circumstantial evidence present is not sufficient to rebut the
legal presumption that a person in possession of personal property is the lawful owner of the same;
41
c) The Honorable Court seriously erred in finding that the evidence preponderates in favor of the herein respondent;
[and]
d) The Honorable Court seriously erred in awarding attorney’s fees and costs of suit in favor of the respondent.16
Petitioner’s Arguments
In its Petition and Reply,17 petitioner mainly argues that the assailed dispositions are grounded entirely on speculation,
and the inferences made are manifestly mistaken and based on a misappreciation of the facts and law; that the CA
failed to consider the testimonial and documentary evidence it presented to prove the fact that the casino chips were
missing and were stolen by Cabrera, who thereafter gave them to respondent’s brothers, Ludwin and Deoven.
Petitioner maintains that the presumption of title under Article 559 cannot extend to respondent’s brothers, who
admitted during the investigation at the Legenda security office and in their Joint Affidavit18 that the chips came from
Cabrera, and not respondent; that the subsequent Sworn Statement19 recanting the Joint Affidavit should not be given
credence, as affidavits of recantation can easily be secured – which thus makes them unreliable; and that no duress
attended the taking of the brothers’ Joint Affidavit, which was prepared by Henry Marzo of the Intelligence and
Investigation Office (IIO) of the Subic Bay Metropolitan Authority (SBMA).
Petitioner asserts that it is unbelievable that respondent would give US$6,000.00 worth of casino chips to his brothers
with which to play at the casino; that with the attending circumstances, the true intention of respondent’s brothers
was to encash the stolen chips which Cabrera handed to them, and not to play at the casino. Petitioner thus concludes
that no coercion could have attended the investigation of Ludwin and Deoven; that their subsequent recantation should
not be given weight; and that for suing on a baseless claim, respondent is not entitled to attorney’s fees and costs of
litigation.
Petitioner thus prays for the reversal of the assailed dispositions and the corresponding dismissal of Civil Case No. 237-
0-97.
Respondent’s Arguments
In his Comment,20 respondent generally echoes the pronouncement of the CA. He likewise notes that petitioner has
raised only questions of fact; that the Petition is being prosecuted to delay the proceedings; that the trial and appellate
courts are correct in finding that petitioner failed to prove its case and show that the casino chips were stolen; that
petitioner failed to rebut the presumption that a person in possession of personal property is the lawful owner of the
same, pursuant to Article 559 of the Civil Code; and that the P30,000.00 award of attorney’s fees should be increased
to P100,000.00.
The Petition is denied.
Petitioner’s underlying theory is that the subject casino chips were in fact stolen by its employee Cabrera, then handed
over to respondent’s brothers, Ludwin and Deoven, for encashment at the casino; that Ludwin and Deoven played at
the casino only for show and to conceal their true intention, which is to encash the chips; that respondent’s claim that
he owned the chips, as they were given to him in payment of services he rendered to a Chinese client, is false. These
arguments require the Court to examine in greater detail the facts involved. However, this may not be done because
the Court is not a trier of facts and does not normally undertake the re-examination of the evidence presented during
trial; the resolution of factual issues is the function of lower courts, whose findings thereon are received with respect
and are binding on the Court subject only to specific exceptions.21 In turn, the factual findings of the Court of Appeals
carry even more weight when they are identical to those of the trial court’s.22cralawred
Besides, a question of fact cannot properly be raised in a petition for review on certiorari.23cralawred G.R. No. 180069 March 5, 2014

Moreover, if petitioner should stick to its theory that Cabrera stole the subject casino chips, then its failure to file a PHILIPPINE COMMERCIAL INTERNATIONAL BANK (now BDO UNIBANK, INC.), Petitioner,
criminal case against the latter – including Ludwin and Deoven for that matter – up to this point certainly does not help vs.
to convince the Court of its position, especially considering that the supposed stolen chips represent a fairly large ARTURO P. FRANCO, substituted by his heirs, namely: MAURICIA P. FRANCO, FLORIBEL P. FRANCO, AND
amount of money. Indeed, for purposes of this proceeding, there appears to be no evidence on record – other than ALEXANDER P. FRANC0,1 Respondents.
mere allegations and suppositions – that Cabrera stole the casino chips in question; such conclusion came unilaterally
from petitioner, and for it to use the same as foundation to the claim that Ludwin, Deoven and respondent are dealing Assailed in this petition for review on certiorari under Rule 45 of the Rules of Court are the July 31, 2007 Decision2 and
in stolen chips is clearly irregular and unfair. October 4, 2007 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 82340, which affirmed the October 21,
2003 Decision4 of the Makati City Regional Trial Court (RTC), Branch 61.
Thus, there should be no basis to suppose that the casino chips found in Ludwin’s and Deoven’s possession were stolen;
petitioner acted arbitrarily in confiscating the same without basis. Their Joint Affidavit – which was later recanted – The pertinent facts, as narrated by the trial court and as adopted both by the CA, as well as petitioner Philippine
does not even bear such fact; it merely states that the chips came from Cabrera. If it cannot be proved, in the first Commercial International Bank (Bank),5 are as follows:
place, that Cabrera stole these chips, then there is no more reason to suppose that Ludwin and Deoven were dealing
in or possessed stolen goods; unless the independent fact that Cabrera stole the chips can be proved, it cannot be said
that they must be confiscated when found to be in Ludwin’s and Deoven’s possession. This is an action for damages filed [on September 5, 2000] by plaintiff Arturo P. Franco against Philippine Commercial
International Bank (PCIB), now known as Equitable-PCIBank, and Equitable Banking Corp.

It is not even necessary to resolve whether Ludwin’s and Deoven’s Joint Affidavit was obtained by duress or otherwise;
the document is irrelevant to petitioner’s cause, as it does not suggest at all that Cabrera stole the subject casino chips. The complaint essentially alleges, among others, that plaintiff secured from defendant PCIB the following Trust
At most, it only shows that Cabrera gave Ludwin and Deoven casino chips, if this fact is true at all – since such Indenture Certificates:
statement has since been recanted. Number Issued Maturity Amount Interest
094846 (Exh. "B") Dec. 8, 1986 Jan. 7, 1987 ₱100,000.00 8.75% p.a.
The fact that Ludwin and Deoven appear to be indecisive as to who gave them the casino chips does not help petitioner 135928 (Exh. "C") Jan. 19, 1987 Feb. 18, 1987 ₱850,594.54 7.75% p.a.
at all. It cannot lead to the conclusion that Cabrera stole the chips and then gave them to the two; as earlier stated,
205007 (Exh. "D") May 13, 1987 June 15, 1987 ₱500,000.00 8.50% p.a.
petitioner had to prove this fact apart from Ludwin’s and Deoven’s claims, no matter how incredible they may seem.
205146 (Exh. "E") July 15, 1987 Aug 14, 1987 ₱502,958.90 9.25% p.a.
Though casino chips do not constitute legal tender,24 there is no law which prohibits their use or trade outside of the that despite demands, defendants refused and still refuses to return to plaintiff the trust amounts, plus the stipulated
casino which issues them. In any case, it is not unusual – nor is it unlikely – that respondent could be paid by his interest[;] that in all of the trust transactions that defendant PCIB had entered into with the plaintiff, defendant PCIB
Chinese client at the former’s car shop with the casino chips in question; said transaction, if not common, is nonetheless represented to plaintiff that[,] in making the trust investment, plaintiff was actually providing for his future since the
not unlawful. These chips are paid for anyway; petitioner would not have parted with the same if their corresponding money invested was going to be managed and administered by their PCIB-Trust Services Group and will be commingled,
representative equivalent – in legal tender, goodwill, or otherwise – was not received by it in return or exchange. pooled and automatically rolled- over for better investment return; that believing the representation of the bank, the
Given this premise – that casino chips are considered to have been exchanged with their corresponding representative plaintiff invested his lifetime savings in the hope that the defendant bank will actually provide for their future by
value – it is with more reason that this Court should require petitioner to prove convincingly and persuasively that the reinvesting and rolling-over their investment automatically, without any need for the plaintiff to take any further action;
chips it confiscated from Ludwin and Deoven were indeed stolen from it; if so, any Tom, Dick or Harry in possession of that on the few occasions that plaintiff had visited the defendant bank to request for a status on his investments, bank
genuine casino chips is presumed to have paid for their representative value in exchange therefor. If petitioner cannot officers would normally pull out his (sic) ledger card and show plaintiff the updated amount due him; that sometime in
prove its loss, then Article 559 cannot apply; the presumption that the chips were exchanged for value remains. 1995, plaintiff discovered that one of his children had leukemia and[,] in the ensuing hospitalization and treatment,
plaintiff spent a lot of money; that because his funds were already exhausted, plaintiff then turned to his Trust
Indenture Certificates and started inquiring as to how he could liquidate the trust; that in the beginning, defendant
Finally, the Court sustains the award of attorney’s fees. Under Article 2208 of the Civil Code,25 attorney’s fees may
bank constantly asked for time to look for his records, at one time [on June 18, 1998], promising to have an answer
be recovered when the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid,
before July 15, 1998, then writing plaintiff on May 18, 2000 saying that the bank [had] coordinated with their Branch
just and demandable claim, or in any other case where the court deems it just and equitable that attorney’s fees and
and Trust Department but that it might take [some time] to retrieve their records; [and] that to plaintiff’s surprise, on
expenses of litigation should be recovered. Petitioner’s act of arbitrarily confiscating the casino chips and treating
June 22, 2000, he received a letter signed by defendant’s counsel, Curato Divina & Partners, in effect denying plaintiff’s
Ludwin and Deoven the way it did, and in refusing to satisfy respondent’s claim despite the fact that it had no basis to
request for payment by stating that due to the conversion of all outstanding PCIBank trust indenture accounts into
withhold the chips, confirm its bad faith, and should entitle respondent to an award.
common trust certificates, all such PCIBank trust indenture certificates have been rendered "null and void." Plaintiff
prays for the payment of the amounts under the Trust Indenture Certificates, plus interest, moral and exemplary
With the foregoing view of the case, a discussion of the other issues raised is deemed irrelevant and unnecessary. damages and attorney’s fees.

WHEREFORE, the Petition is DENIED. The assailed April 27, 2010 Decision and August 24, 2010 Resolution of the Court In their Answer, defendants admit the issuance by defendant PCIB of the Trust Indenture Certificates subject matter
of Appeals in CA-G.R. CV No. 91758 are AFFIRMED. of the complaint, but deny the allegation that the investments subject of the Trust Indenture Certificates are

42
automatically rolled-over as such certificates have their own fixed term and maturity date, and that the present action
had already prescribed.
As stated in the Pre-Trial Order issued by this court on 15 February 2002, the following issues were defined and agreed
upon by the parties, to wit:
1. Whether or not the plaintiff is entitled to the relief he seeks; and
2. Whether or not the cause of action as exerted (sic) by the defendant has already prescribed.
Plaintiff presented as its witness plaintiff Arturo P. Franco himself [who] testified, among others[:] that he is the
proprietor of Fair Marketing Freight Services[,] which is the investor named in Trust Indenture Certificate 094846;
that[,] in 1986, he decided to save up for his retirement and to invest his hard earned money; that he was then 51
years old and his choice was to deposit his funds with defendant PCIB which later on merged with defendant Equitable
Banking Corp. and is now known as Equitable PCIBank; that he chose defendant PCIB for the latter’s representation
that by making such investment, he was actually providing for his future since his investment would be commingled,
pooled and automatically rolled-over for better investment return and which will provide for his needs upon retirement,
without need for him to take any further action; that he was a loyal client of the defendants from 1986 up to 1997;
that he entered into a trust agreement with defendant PCIB for which the latter issued subject Trust Indenture
Certificates ([TICs], for brevity); that sometime in 1997, when he was then 62 years old, he [tried] to encash the trust
indenture certificates only to be given a run-around by the defendants; that sometime in 1995, his son, Arthur, was
diagnosed to be afflicted with leukemia and eventually died on October 24, 1997; that because of his son’s illness, he
was forced to go to defendants and try to encash his trust indenture certificates but was denied by defendant bank;
that in a letter dated June 22, 2000, defendants, through their counsel, informed plaintiff that the subject [TICs] are
"null and void"; that when he received the letter of June 22, 2000, he was at first speechless and totally defeated and
at a loss; that he and his wife begun to experience sleepless nights, became anxious because their hope to secure their
life in their old age had fallen apart[;] that instead of just enjoying a secured life with his wife and enjoying his
grandchildren and spending more time with the Lord, he was now in debt and burdened with the fact that his lifetime
savings just disappeared before his very eyes without a trace; [and] that plaintiff was constrained to file this case and
[spend] ₱22,117.80 in filing fees, to engage the services of counsel for the amount of ₱50,000.00 with appearance fee
of ₱3,000.00 per hearing, and that he suffered moral damages in the amount of ₱200,000.00.
The foregoing facts were not rebutted by defendants. The court finds the witness and his testimony credible as the
witness testified in a simple and straightforward manner. Upon admission of plaintiff’s exhibits, plaintiff rested his case.
The defendants presented Cecilia P. Soriano and Antonio M. Fortuno as their witnesses.
Cecilia P. Soriano, Operations Officer of defendant Equitable-PCIBank, testified that she came to know plaintiff in 1987
when she was assigned at PCIB Gil Puyat Branch; that plaintiff was one of the bank’s valued clients[;] and that plaintiff
secured the [TICs] subject matter of the complaint. On cross-examination, the witness admitted that she has seen only
the photocopies of plaintiff’s [TICs]; that she had no direct dealing with plaintiff regarding the [TICs] and she had no
idea what happened to plaintiff’s [TICs] after their respective maturity dates; [and] that valued clients of the bank
were given special privileges, such as allowing these clients to withdraw or encash [TICs] or investments over the
phone[,] but she did not receive any call from plaintiff withdrawing or encashing the plaintiff’s [TICs].
The testimony of their next witness, Antonio Martin S. Fortuno, was offered to prove, among others, that [TICs] expired
upon maturity and after which, they were automatically rolled-over.
Antonio Martin S. Fortuno, Operations Officer of defendant Equitable-PCIBank, testified that he is familiar with the
Trust Indenture Certificates issued by defendant bank; that when a client would like to secure a Trust Indenture
Certificate from the bank, they would ask the client, among others, to sign [roll-over] agreement/rules and regulations;
43
that when a client would like to withdraw his proceeds from the certificate upon maturity, they follow the following
steps: (1) they retrieve the old certificates from client, (2) they have [the] client sign on the back portion of the
certificate, (3) they prepare mode of payment – MC or credit to other accounts, and (4) they file the paid certificate to
paid/roll-over file; that if the holder of a certificate does not withdraw the placement upon maturity, they replace the
old certificate with a new one; that if the client is at the branch, the old certificate is replaced with a new certificate,
have the client sign at the register copy, then stamp the old certificate as Old Certificate-Stamp rolled-over/replaced;
that if the client is not at the branch, they replace the old certificate with a new certificate and stamped with rolled-
over; that certificates have fixed maturity dates; that interest rates stated in the certificates vary as they go either up
or down depending on the prevailing bank rates as provided by the Trust Department; that[,] in 1992[,] all existing
Trust Indenture Certificates were converted into Common Trust Funds; [and] that he is not aware of any Trust
Indenture Certificate belonging to plaintiff which were converted into Common Trust Funds in 1992.
On cross-examination, the witness admitted that he is familiar with Trust Indenture Certificates; that Trust Indenture
Certificates have been converted into Common Trust Funds; that the change is only in name because they have the
same features and that the only difference is that Common Trust Funds are classified into several product types
depending on the limit of the amount of investment; that there is nothing in the certificate that says it has a roll-over
feature; that, however, if the certificate expires and the client does not claim or withdraw his funds or surrender the
certificate, they roll-over the funds of the client; that if a guest comes with the original Trust Indenture Certificate
without any stamp as being taken or cancelled, the bank should verify with the outstanding copy because the bank
should have an outstanding copy of
that Trust Indenture Certificate; that he is not aware that the Trust Indenture Certificates of the plaintiff were verified
with their records; and that he does not know whether plaintiff’s Trust Indenture Certificates were actually paid out by
the bank to plaintiff.
Defendants did not conduct any re-direct.6
On October 21, 2003, the RTC rendered a Decision, the dispositive portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor of plaintiff and ordering
defendant Philippine Commercial International Bank, now known as Equitable-PCIBank, to pay plaintiff the following:
1. On the First Cause of Action, the sum of ₱100,000.00, plus the stipulated interest of 8.75% per annum for the
period December 8, 1986 to January 7, 1987, plus interest of 6% per annum from January 8, 1987 until fully paid;
2. On the Second Cause of Action, the sum of ₱840,594.54, plus the stipulated interest of 7.75% per annum for
the period January 19, 1987 to February 18, 1987, plus interest of 6% per annum from February 19, 1987 until
fully paid;
3. On the Third Cause of Action, the sum of ₱500,000.00, plus the stipulated interest of 8.50% per annum for the
period May 13, 1987 to June 15, 1987, plus interest of 6% per annum from June 16, 1987 until fully paid;
4. On the Fourth Cause of Action, the sum of ₱502,958.90, plus the stipulated interest of 9.25% per annum for the
period July 15, 1987 to August 14, 1987, plus interest of 6% per annum from August 15, 1987 until fully paid;
5. ₱50,000.00 as moral damages;
6. ₱200,000.00 as exemplary damages;
7. Attorney’s fees in the amount of ₱50,000.00, plus ₱3,000.00 for every hearing attended; and
8. ₱22,117.80 as reimbursement for filing fees.
The case against Equitable Banking Corporation is dismissed for insufficiency of evidence.
Considering that the four TICs have not been replaced or cancelled, the RTC held that the relationship of express trust
between petitioner Bank and respondent still subsists at the time the latter demanded the withdrawal of his funds
under them. While the TICs contain a maturity date, the court opined that the same refers only to the gross income
expectation or the applicable interest rate because the funds are automatically rolled-over with varying interest rates
depending on the prevailing interest rates as determined by petitioner’s Trust Department. With respect, however, to
the interest rate applicable after the stipulated maturity dates, the court deemed it fair and reasonable to impose the
legal rate of interest for want of evidence on the prevailing rate at the time of roll-over. Finally, the court found that
petitioner Bank is in bad faith in its dealings with respondent when it unilaterally declared – despite claiming that
respondent was one of its valued clients – the TICs as null and void by reason of their conversion to Common Trust
Funds in 1991. The absence of good faith was made more manifest when Fortuno testified that the trust indenture
certificate and common trust fund have the same features and the only difference is in the name and classification of
the amount of investment.
On appeal, the CA affirmed the RTC ruling. According to the appellate court, Soriano could not have possibly known if
respondent indeed withdrew any or all of his participation in the subject TICS, because by her very own admission
during the cross-examination, she did not have any direct dealing with him with respect to the TICs at the time they
matured or even thereafter. Likewise, petitioner Bank failed to adduce any documentary evidence to establish the
alleged fact that the four TICs were already paid or cancelled, or that respondent’s participation therein was already
withdrawn. Further, respondent’s testimony that he gave verbal instructions to petitioner Bank to roll-over his
investment upon their maturity was bolstered by Fortuno’s admission in open court that it has been petitioner Bank’s
practice to roll-over investments which remain unclaimed after their maturity even without instruction from their
owners. With all these findings, the CA concluded that the claim of respondent is not yet barred by prescription, since
the maturity dates of the four TICs did not terminate the express trust created between the parties.
A motion for reconsideration was filed by petitioner, but the CA acted unfavorably; hence, this petition.
We deny.
Upon perusal of the entire case records, the Court finds no reversible error committed by the CA in sustaining the RTC
Decision. Considering the evidence at hand, both courts have applied the law in accordance with the facts of the case.
A quick point, however, on the issue of alleged payment by petitioner Bank on the subject trust certificate indentures.
Jurisprudence abounds that, in civil cases, one who pleads payment has the burden of proving it.8 Even where the
plaintiff must allege non-payment, the general rule is that the burden rests on the defendant to prove payment, rather
than on the plaintiff to prove non-payment.9 When the creditor is in possession of the document of credit, he need not
prove non-payment for it is presumed.10 The creditor's possession of the evidence of debt is proof that the debt has
not been discharged by payment.11
In this case, respondent's possession of the original copies of the subject TICs strongly supports his claim that petitioner
Bank's obligation to return the principal plus interest of the money placement has not been extinguished. The TICs in
the hands of respondent is a proof of indebtedness and a prima facie evidence that they have not been paid. Petitioner
Bank could have easily presented documentary evidence to dispute the claim, but it did not. In its omission, it may be
reasonably deduced that no evidence to that effect really exist. Worse, the testimonies of petitioner Bank's own
witnesses, reinforce, rather than belie, respondent's allegations of non-payment.
WHEREFORE, premises considered, the instant Petition is DENIED. The July 31, 2007 Decision and October 4, 2007
Resolution of the Court of Appeals in CA-G.R. CV No. 82340, which affirmed the October 21, 2003 Decision of the
Makati City Regional Trial Court, Branch 61, are AFFIRMED.
44
G.R. No. 151903 October 9, 2009
MANUEL GO CINCO and ARACELI S. GO CINCO, Petitioners,
vs.
COURT OF APPEALS, ESTER SERVACIO and MAASIN TRADERS LENDING CORPORATION Respondents.
Before the Court is a petition for review on certiorari1 filed by petitioners, spouses Manuel and Araceli Go Cinco
(collectively, the spouses Go Cinco), assailing the decision 2 dated June 22, 2001 of the Court of Appeals (CA) in CA-
G.R. CV No. 47578, as well as the resolution3 dated January 25, 2002 denying the spouses Go Cinco’s motion for
reconsideration.
THE FACTUAL ANTECEDENTS
In December 1987, petitioner Manuel Cinco (Manuel) obtained a commercial loan in the amount of ₱700,000.00 from
respondent Maasin Traders Lending Corporation (MTLC). The loan was evidenced by a promissory note dated December
11, 1987,4 and secured by a real estate mortgage executed on December 15, 1987 over the spouses Go Cinco’s land
and 4-storey building located in Maasin, Southern Leyte.
Under the terms of the promissory note, the ₱700,000.00 loan was subject to a monthly interest rate of 3% or 36%
per annum and was payable within a term of 180 days or 6 months, renewable for another 180 days. As of July 16,
1989, Manuel’s outstanding obligation with MTLC amounted to ₱1,071,256.66, which amount included the principal,
interest, and penalties.5
To be able to pay the loan in favor of MTLC, the spouses Go Cinco applied for a loan with the Philippine National Bank,
Maasin Branch (PNB or the bank) and offered as collateral the same properties they previously mortgaged to MTLC.
The PNB approved the loan application for ₱1.3 Million6 through a letter dated July 8, 1989; the release of the amount,
however, was conditioned on the cancellation of the mortgage in favor of MTLC.
On July 16, 1989, Manuel went to the house of respondent Ester Servacio (Ester), MTLC’s President, to inform her that
there was money with the PNB for the payment of his loan with MTLC. Ester then proceeded to the PNB to verify the
information, but she claimed that the bank’s officers informed her that Manuel had no pending loan application with
them. When she told Manuel of the bank’s response, Manuel assured her there was money with the PNB and promised
to execute a document that would allow her to collect the proceeds of the PNB loan.
On July 20, 1989, Manuel executed a Special Power of Attorney 7 (SPA) authorizing Ester to collect the proceeds of his
PNB loan. Ester again went to the bank to inquire about the proceeds of the loan. This time, the bank’s officers
confirmed the existence of the ₱1.3 Million loan, but they required Ester to first sign a deed of release/cancellation of
mortgage before they could release the proceeds of the loan to her. Outraged that the spouses Go Cinco used the same
properties mortgaged to MTLC as collateral for the PNB loan, Ester refused to sign the deed and did not collect the ₱1.3
Million loan proceeds.
As the MTLC loan was already due, Ester instituted foreclosure proceedings against the spouses Go Cinco on July 24,
1989.
To prevent the foreclosure of their properties, the spouses Go Cinco filed an action for specific performance, damages,
and preliminary injunction8 before the Regional Trial Court (RTC), Branch 25, Maasin, Southern Leyte. The spouses Go
Cinco alleged that foreclosure of the mortgage was no longer proper as there had already been settlement of Manuel’s
obligation in favor of MTLC. They claimed that the assignment of the proceeds of the PNB loan amounted to the payment
of the MTLC loan. Ester’s refusal to sign the deed of release/cancellation of mortgage and to collect the proceeds of the
PNB loan were, to the spouses Go Cinco, completely unjustified and entitled them to the payment of damages.
Ester countered these allegations by claiming that she had not been previously informed of the spouses Go Cinco’s
plan to obtain a loan from the PNB and to use the loan proceeds to settle Manuel’s loan with MTLC. She claimed that
she had no explicit agreement with Manuel authorizing her to apply the proceeds of the PNB loan to Manuel’s loan with
MTLC; the SPA merely authorized her to collect the proceeds of the loan. She thus averred that it was unfair for the
spouses Go Cinco to require the release of the mortgage to MTLC when no actual payment of the loan had been made.
In a decision dated August 16, 1994,9 the RTC ruled in favor of the spouses Go Cinco. The trial court found that the
evidence sufficiently established the existence of the PNB loan whose proceeds were available to satisfy Manuel’s
obligation with MTLC, and that Ester unjustifiably refused to collect the amount. Creditors, it ruled, cannot unreasonably
prevent payment or performance of obligation to the damage and prejudice of debtors who may stand liable for
payment of higher interest rates.10 After finding MTLC and Ester liable for abuse of rights, the RTC ordered the award
of the following amounts to the spouses Go Cinco:
(a) P1,044,475.15 plus 535.63 per day hereafter, representing loss of savings on interest, by way of actual or
compensatory damages, if defendant corporation insists on the original 3% monthly interest rate;
(b) P100,000.00 as unrealized profit;
(c) P1,000,000.00 as moral damages;
(d) P20,000.00 as exemplary damages;
(e) P22,000.00 as litigation expenses; and
(f) 10% of the total amount as attorney’s fees plus costs.11
Through an appeal with the CA, MTLC and Ester successfully secured a reversal of the RTC’s decision. Unlike the trial
court, the appellate court found it significant that there was no explicit agreement between Ester and the spouses Go
Cinco for the cancellation of the MTLC mortgage in favor of PNB to facilitate the release and collection by Ester of the
proceeds of the PNB loan. The CA read the SPA as merely authorizing Ester to withdraw the proceeds of the loan. As
Manuel’s loan obligation with MTLC remained unpaid, the CA ruled that no valid objection could be made to the
institution of the foreclosure proceedings. Accordingly, it dismissed the spouses Go Cinco’ complaint. From this
dismissal, the spouses Go Cinco filed the present appeal by certiorari.
THE PETITION
The spouses Go Cinco impute error on the part of the CA for its failure to consider their acts as equivalent to payment
that extinguished the MTLC loan; their act of applying for a loan with the PNB was indicative of their good faith and
honest intention to settle the loan with MTLC. They contend that the creditors have the correlative duty to accept the
payment.
The spouses Go Cinco charge MTLC and Ester with bad faith and ill-motive for unjustly refusing to collect the proceeds
of the loan and to execute the deed of release of mortgage. They assert that Ester’s justifications for refusing the
payment were flimsy excuses so she could proceed with the foreclosure of the mortgaged properties that were worth
more than the amount due to MTLC. Thus, they conclude that the acts of MTLC and of Ester amount to abuse of rights
that warrants the award of damages in their (spouses Go Cinco’s) favor.
In refuting the claims of the spouses Go Cinco, MTLC and Ester raise the same arguments they raised before the RTC
and the CA. They claim that they were not aware of the loan and the mortgage to PNB, and that there was no agreement
that the proceeds of the PNB loan were to be used to settle Manuel’s obligation with MTLC. Since the MTLC loan
remained unpaid, they insist that the institution of the foreclosure proceedings was proper. Additionally, MTLC and
Ester contend that the present petition raised questions of fact that cannot be addressed in a Rule 45 petition.
45
THE COURT’S RULING
The Court finds the petition meritorious.
Preliminary Considerations
Our review of the records shows that there are no factual questions involved in this case; the ultimate facts necessary
for the resolution of the case already appear in the records. The RTC and the CA decisions differed not so much on the
findings of fact, but on the conclusions derived from these factual findings. The correctness of the conclusions derived
from factual findings raises legal questions when the conclusions are so linked to, or are inextricably intertwined with,
the appreciation of the applicable law that the case requires, as in the present case. 12 The petition raises the issue of
whether the loan due the MTLC had been extinguished; this is a question of law that this Court can fully address and
settle in an appeal by certiorari.
Payment as Mode of Extinguishing Obligations
Obligations are extinguished, among others, by payment or performance, 13 the mode most relevant to the factual
situation in the present case. Under Article 1232 of the Civil Code, payment means not only the delivery of money but
also the performance, in any other manner, of an obligation. Article 1233 of the Civil Code states that "a debt shall not
be understood to have been paid unless the thing or service in which the obligation consists has been completely
delivered or rendered, as the case may be." In contracts of loan, the debtor is expected to deliver the sum of money
due the creditor. These provisions must be read in relation with the other rules on payment under the Civil
Code,14 which rules impliedly require acceptance by the creditor of the payment in order to extinguish an obligation.
In the present case, Manuel sought to pay Ester by authorizing her, through an SPA, to collect the proceeds of the PNB
loan – an act that would have led to payment if Ester had collected the loan proceeds as authorized. Admittedly, the
delivery of the SPA was not, strictly speaking, a delivery of the sum of money due to MTLC, and Ester could not be
compelled to accept it as payment based on Article 1233. Nonetheless, the SPA stood as an authority to collect the
proceeds of the already-approved PNB loan that, upon receipt by Ester, would have constituted as payment of the
MTLC loan.15 Had Ester presented the SPA to the bank and signed the deed of release/cancellation of mortgage, the
delivery of the sum of money would have been effected and the obligation extinguished. 16 As the records show, Ester
refused to collect and allow the cancellation of the mortgage.
Under these facts, Manuel posits two things: first, that Ester’s refusal was based on completely unjustifiable grounds;
and second, that the refusal was equivalent to payment that led to the extinguishment of the obligation.
a. Unjust Refusal to Accept Payment
After considering Ester’s arguments, we agree with Manuel that Ester’s refusal of the payment was without basis.
Ester refused to accept the payment because the bank required her to first sign a deed of release/cancellation of the
mortgage before the proceeds of the PNB loan could be released. As a prior mortgagee, she claimed that the spouses
Go Cinco should have obtained her consent before offering the properties already mortgaged to her as security for the
PNB loan. Moreover, Ester alleged that the SPA merely authorized her to collect the proceeds of the loan; there was
no explicit agreement that the MTLC loan would be paid out of the proceeds of the PNB loan.
There is nothing legally objectionable in a mortgagor’s act of taking a second or subsequent mortgage on a property
already mortgaged; a subsequent mortgage is recognized as valid by law and by commercial practice, subject to the
prior rights of previous mortgages. Section 4, Rule 68 of the 1997 Rules of Civil Procedure on the disposition of the
proceeds of sale after foreclosure actually requires the payment of the proceeds to, among others, the junior
encumbrancers in the order of their priority.17 Under Article 2130 of the Civil Code, a stipulation forbidding the owner
from alienating the immovable mortgaged is considered void. If the mortgagor-owner is allowed to convey the entirety
of his interests in the mortgaged property, reason dictates that the lesser right to encumber his property with other
liens must also be recognized. Ester, therefore, could not validly require the spouses Go Cinco to first obtain her consent
to the PNB loan and mortgage. Besides, with the payment of the MTLC loan using the proceeds of the PNB loan, the
mortgage in favor of the MTLC would have naturally been cancelled.
We find it improbable for Ester to claim that there was no agreement to apply the proceeds of the PNB loan to the
MTLC loan. Beginning July 16, 1989, Manuel had already expressed intent to pay his loan with MTLC and thus requested
for an updated statement of account. Given Manuel’s express intent of fully settling the MTLC loan and of paying
through the PNB loan he would secure (and in fact secured), we also cannot give credit to the claim that the SPA only
allowed Ester to collect the proceeds of the PNB loan, without giving her the accompanying authority, although verbal,
to apply these proceeds to the MTLC loan. Even Ester’s actions belie her claim as she in fact even went to the PNB to
collect the proceeds. In sum, the surrounding circumstances of the case simply do not support Ester’s position.
b. Unjust Refusal Cannot be Equated to Payment
While Ester’s refusal was unjustified and unreasonable, we cannot agree with Manuel’s position that this refusal had
the effect of payment that extinguished his obligation to MTLC. Article 1256 is clear and unequivocal on this point when
it provides that –
ARTICLE 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the
debtor shall be released from responsibility by the consignation of the thing or sum due. [Emphasis supplied.]
In short, a refusal without just cause is not equivalent to payment; to have the effect of payment and the consequent
extinguishment of the obligation to pay, the law requires the companion acts of tender of payment and consignation.
Tender of payment, as defined in Far East Bank and Trust Company v. Diaz Realty, Inc.,18 is the definitive act of offering
the creditor what is due him or her, together with the demand that the creditor accept the same. When a creditor
refuses the debtor’s tender of payment, the law allows the consignation of the thing or the sum due. Tender and
consignation have the effect of payment, as by consignation, the thing due is deposited and placed at the disposal of
the judicial authorities for the creditor to collect.19
A sad twist in this case for Manuel was that he could not avail of consignation to extinguish his obligation to MTLC, as
PNB would not release the proceeds of the loan unless and until Ester had signed the deed of release/cancellation of
mortgage, which she unjustly refused to do. Hence, to compel Ester to accept the loan proceeds and to prevent their
mortgaged properties from being foreclosed, the spouses Go Cinco found it necessary to institute the present case for
specific performance and damages.
c. Effects of Unjust Refusal
Under these circumstances, we hold that while no completed tender of payment and consignation took place sufficient
to constitute payment, the spouses Go Cinco duly established that they have legitimately secured a means of paying
off their loan with MTLC; they were only prevented from doing so by the unjust refusal of Ester to accept the proceeds
of the PNB loan through her refusal to execute the release of the mortgage on the properties mortgaged to MTLC. In
other words, MTLC and Ester in fact prevented the spouses Go Cinco from the exercise of their right to secure payment
of their loan. No reason exists under this legal situation why we cannot compel MTLC and Ester: (1) to release the
mortgage to MTLC as a condition to the release of the proceeds of the PNB loan, upon PNB’s acknowledgment that the
46
proceeds of the loan are ready and shall forthwith be released; and (2) to accept the proceeds, sufficient to cover the
total amount of the loan to MTLC, as payment for Manuel’s loan with MTLC.
We also find that under the circumstances, the spouses Go Cinco have undertaken, at the very least, the equivalent of
a tender of payment that cannot but have legal effect. Since payment was available and was unjustifiably refused,
justice and equity demand that the spouses Go Cinco be freed from the obligation to pay interest on the outstanding
amount from the time the unjust refusal took place;20 they would not have been liable for any interest from the time
tender of payment was made if the payment had only been accepted. Under Article 19 of the Civil Code, they should
likewise be entitled to damages, as the unjust refusal was effectively an abusive act contrary to the duty to act with
honesty and good faith in the exercise of rights and the fulfillment of duty.
For these reasons, we delete the amounts awarded by the RTC to the spouses Go Cinco (₱1,044,475.15, plus ₱563.63
per month) representing loss of savings on interests for lack of legal basis. These amounts were computed based on
the difference in the interest rates charged by the MTLC (36% per annum) and the PNB (17% to 18% per annum),
from the date of tender of payment up to the time of the promulgation of the RTC decision. The trial court failed to
consider the effects of a tender of payment and erroneously declared that MTLC can charge interest at the rate of only
18% per annum – the same rate that PNB charged, not the 36% interest rate that MTLC charged; the RTC awarded
the difference in the interest rates as actual damages.
As part of the actual and compensatory damages, the RTC also awarded ₱100,000.00 to the spouses Go Cinco
representing unrealized profits. Apparently, if the proceeds of the PNB loan (₱1,203,685.17) had been applied to the
MTLC loan (₱1,071,256.55), there would have been a balance of ₱132,428.62 left, which amount the spouses Go Cinco
could have invested in their businesses that would have earned them a profit of at least ₱100,000.00.1avvphi1
We find no factual basis for this award. The spouses Go Cinco were unable to substantiate the amount they claimed as
unrealized profits; there was only their bare claim that the excess could have been invested in their other businesses.
Without more, this claim of expected profits is at best speculative and cannot be the basis for a claim for damages. In
Lucas v. Spouses Royo,21 we declared that:
In determining actual damages, the Court cannot rely on speculation, conjecture or guesswork as to the amount.
Actual and compensatory damages are those recoverable because of pecuniary loss in business, trade, property,
profession, job or occupation and the same must be sufficiently proved, otherwise, if the proof is flimsy and
unsubstantiated, no damages will be given. [Emphasis supplied.]
We agree, however, that there was basis for the award of moral and exemplary damages and attorney’s fees.
Ester’s act of refusing payment was motivated by bad faith as evidenced by the utter lack of substantial reasons to
support it. Her unjust refusal, in her behalf and for the MTLC which she represents, amounted to an abuse of rights;
they acted in an oppressive manner and, thus, are liable for moral and exemplary damages. 22 We nevertheless reduce
the ₱1,000,000.00 to ₱100,000.00 as the originally awarded amount for moral damages is plainly excessive.
We affirm the grant of exemplary damages by way of example or correction for the public good in light of the same
reasons that justified the grant of moral damages.
As the spouses Go Cinco were compelled to litigate to protect their interests, they are entitled to payment of 10% of
the total amount of awarded damages as attorney’s fees and expenses of litigation.
WHEREFORE, we GRANT the petitioners’ petition for review on certiorari, and REVERSE the decision of June 22, 2001
of the Court of Appeals in CA-G.R. CV No. 47578, as well as the resolution of January 25, 2002 that followed. We
REINSTATE the decision dated August 16, 1994 of the Regional Trial Court, Branch 25, Maasin, Southern Leyte, with
the following MODIFICATIONS:
(1) The respondents are hereby directed to accept the proceeds of the spouses Go Cinco’s PNB loan, if still available,
and to consent to the release of the mortgage on the property given as security for the loan upon PNB’s
acknowledgment that the proceeds of the loan, sufficient to cover the total indebtedness to respondent Maasin
Traders Lending Corporation computed as of June 20, 1989, shall forthwith be released;
(2) The award for loss of savings and unrealized profit is deleted;
(3) The award for moral damages is reduced to ₱100,000.00; and
(4) The awards for exemplary damages, attorney’s fees, and expenses of litigation are retained.
The awards under (3) and (4) above shall be deducted from the amount of the outstanding loan due the respondents
as of June 20, 1989. Costs against the respondents.
47
G.R. No. 182128, February 19, 2014
PHILIPPINE NATIONAL BANK, Petitioner, v. TERESITA TAN DEE, ANTIPOLO PROPERTIES, INC., (NOW
PRIME EAST PROPERTIES, INC.) AND AFP–RSBS, INC., Respondents.
This is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the Decision2 dated August 13, 2007 and
Resolution3 dated March 13, 2008 rendered by the Court of Appeals (CA) in CA–G.R. SP No. 86033, which affirmed
the Decision4 dated August 4, 2004 of the Office of the President (OP) in O.P. Case No. 04–D–182 (HLURB Case No.
REM–A–030724–0186).
Facts of the Case
Some time in July 1994, respondent Teresita Tan Dee (Dee) bought from respondent Prime East Properties Inc.5 (PEPI)
on an installment basis a residential lot located in Binangonan, Rizal, with an area of 204 square meters6 and covered
by Transfer Certificate of Title (TCT) No. 619608. Subsequently, PEPI assigned its rights over a 213,093–sq m property
on August 1996 to respondent Armed Forces of the Philippines–Retirement and Separation Benefits System, Inc. (AFP–
RSBS), which included the property purchased by Dee.
Thereafter, or on September 10, 1996, PEPI obtained a P205,000,000.00 loan from petitioner Philippine National Bank
(petitioner), secured by a mortgage over several properties, including Dee’s property. The mortgage was cleared by
the Housing and Land Use Regulatory Board (HLURB) on September 18, 1996.7cralawred
After Dee’s full payment of the purchase price, a deed of sale was executed by respondents PEPI and AFP–RSBS on
July 1998 in Dee’s favor. Consequently, Dee sought from the petitioner the delivery of the owner’s duplicate title over
the property, to no avail. Thus, she filed with the HLURB a complaint for specific performance to compel delivery of
TCT No. 619608 by the petitioner, PEPI and AFP–RSBS, among others. In its Decision8 dated May 21, 2003, the HLURB
ruled in favor of Dee and disposed as follows:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
Directing [the petitioner] to cancel/release the mortgage on Lot 12, Block 21–A, Village East Executive Homes
covered by Transfer Certificate of Title No. –619608– (TCT No. –619608–), and accordingly, surrender/release the
title thereof to [Dee];
Immediately upon receipt by [Dee] of the owner’s duplicate of Transfer Certificate of Title No. –619608– (TCT No.
–619608–), respondents PEPI and AFP–RSBS are hereby ordered to deliver the title of the subject lot in the name
of [Dee] free from all liens and encumbrances;
Directing respondents PEPI and AFP–RSBS to pay [the petitioner] the redemption value of Lot 12, Block 21–A,
Village East Executive Homes covered by Transfer Certificate of Title No. –619608– (TCT No. –619608–) as agreed
upon by them in their Real Estate Mortgage within six (6) months from the time the owner’s duplicate of Transfer
Certificate of Title No. –619608– (TCT No. –619608–) is actually surrendered and released by [the petitioner] to
[Dee];
In the alternative, in case of legal and physical impossibility on the part of [PEPI, AFP–RSBS, and the petitioner] to
comply and perform their respective obligation/s, as above–mentioned, respondents PEPI and AFP–RSBS are
hereby ordered to jointly and severally pay to [Dee] the amount of FIVE HUNDRED TWENTY THOUSAND PESOS
([P]520,000.00) plus twelve percent (12%) interest to be computed from the filing of complaint on April 24, 2002
until fully paid; and
Ordering [PEPI, AFP–RSBS, and the petitioner] to pay jointly and severally [Dee] the following sums:
a) The amount of TWENTY FIVE THOUSAND PESOS ([P]25,000.00) as attorney’s fees;
b) The cost of litigation[;] and
c) An administrative fine of TEN THOUSAND PESOS ([P]10,000.00) payable to this Office fifteen (15) days upon
receipt of this decision, for violation of Section 18 in relation to Section 38 of PD 957.
The HLURB decision was affirmed by its Board of Commissioners per Decision dated March 15, 2004, with modification
as to the rate of interest.10
On appeal, the Board of Commissioners’ decision was affirmed by the OP in its Decision dated August 4, 2004, with
modification as to the monetary award.11cralawred
Hence, the petitioner filed a petition for review with the CA, which, in turn, issued the assailed Decision dated August
13, 2007, affirming the OP decision. The dispositive portion of the decision reads:chanRoblesvirtualLawlibrary
WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision dated August 4, 2004 rendered by the
Office of the President in O. P. Case No. 04–D–182 (HLURB Case No. REM–A–030724–0186) is hereby AFFIRMED.
Its motion for reconsideration having been denied by the CA in the Resolution dated March 13, 2008, the petitioner
filed the present petition for review on the following grounds:
THE HONORABLE COURT OF APPEALS ERRED IN ORDERING OUTRIGHT RELEASE OF TCT NO. 619608 DESPITE PNB’S
DULY REGISTERED AND HLURB[–] APPROVED MORTGAGE ON TCT NO. 619608.
THE HONORABLE COURT OF APPEALS ERRED IN ORDERING CANCELLATION OF MORTGAGE/RELEASE OF TITLE IN
FAVOR OF RESPONDENT DEE DESPITE THE LACK OF PAYMENT OR SETTLEMENT BY THE MORTGAGOR (API/PEPI and
AFP–RSBS) OF ITS EXISTING LOAN OBLIGATION TO PNB, OR THE PRIOR EXERCISE OF RIGHT OF REDEMPTION BY
THE MORTGAGOR AS MANDATED BY SECTION 25 OF PD 957 OR DIRECT PAYMENT MADE BY RESPONDENT DEE TO
PNB PURSUANT TO THE DEED OF UNDERTAKING WHICH WOULD WARRANT RELEASE OF THE SAME.13
The petitioner claims that it has a valid mortgage over Dee’s property, which was part of the property mortgaged by
PEPI to it to secure its loan obligation, and that Dee and PEPI are bound by such mortgage. The petitioner also argues
that it is not privy to the transactions between the subdivision project buyers and PEPI, and has no obligation to perform
any of their respective undertakings under their contract.14
The petitioner also maintains that Presidential Decree (P.D.) No. 95715 cannot nullify the subsisting agreement between
it and PEPI, and that the petitioner’s rights over the mortgaged properties are protected by Act 313516 . If at all, the
petitioner can be compelled to release or cancel the mortgage only after the provisions of P.D. No. 957 on redemption
of the mortgage by the owner/developer (Section 25) are complied with. The petitioner also objects to the denomination
by the CA of the provisions in the Affidavit of Undertaking as stipulations pour autrui,17 arguing that the release of the
title was conditioned on Dee’s direct payment to it.18
Respondent AFP–RSBS, meanwhile, contends that it cannot be compelled to pay or settle the obligation under the
mortgage contract between PEPI and the petitioner as it is merely an investor in the subdivision project and is not privy
to the mortgage.19
Respondent PEPI, on the other hand, claims that the title over the subject property is one of the properties due for
release by the petitioner as it has already been the subject of a Memorandum of Agreement and dacion en pago entered
into between them.20 The agreement was reached after PEPI filed a petition for rehabilitation, and contained the
stipulation that the petitioner agreed to release the mortgage lien on fully paid mortgaged properties upon the issuance
of the certificates of title over the dacioned properties.21
For her part, respondent Dee adopts the arguments of the CA in support of her prayer for the denial of the petition for
review.22
48
Ruling of the Court
The petition must be DENIED.
The petitioner is correct in arguing that it is not obliged to perform any of the undertaking of respondent PEPI and AFP–
RSBS in its transactions with Dee because it is not a privy thereto. The basic principle of relativity of contracts is that
contracts can only bind the parties who entered into it,23 and cannot favor or prejudice a third person, even if he is
aware of such contract and has acted with knowledge thereof.24 “Where there is no privity of contract, there is likewise
no obligation or liability to speak about.”25cralawred
The petitioner, however, is not being tasked to undertake the obligations of PEPI and AFP–RSBS. In this case, there
are two phases involved in the transactions between respondents PEPI and Dee – the first phase is the contract to sell,
which eventually became the second phase, the absolute sale, after Dee’s full payment of the purchase price. In a
contract of sale, the parties’ obligations are plain and simple. The law obliges the vendor to transfer the ownership of
and to deliver the thing that is the object of sale.26 On the other hand, the principal obligation of a vendee is to pay
the full purchase price at the agreed time.27 Based on the final contract of sale between them, the obligation of PEPI,
as owners and vendors of Lot 12, Block 21–A, Village East Executive Homes, is to transfer the ownership of and to
deliver Lot 12, Block 21–A to Dee, who, in turn, shall pay, and has in fact paid, the full purchase price of the property.
There is nothing in the decision of the HLURB, as affirmed by the OP and the CA, which shows that the petitioner is
being ordered to assume the obligation of any of the respondents. There is also nothing in the HLURB decision, which
validates the petitioner’s claim that the mortgage has been nullified. The order of cancellation/release of the mortgage
is simply a consequence of Dee’s full payment of the purchase price, as mandated by Section 25 of P.D. No. 957, to
wit:
Sec. 25. Issuance of Title. The owner or developer shall deliver the title of the lot or unit to the buyer upon full
payment of the lot or unit. No fee, except those required for the registration of the deed of sale in the Registry of
Deeds, shall be collected for the issuance of such title. In the event a mortgage over the lot or unit is outstanding at
the time of the issuance of the title to the buyer, the owner or developer shall redeem the mortgage or the
corresponding portion thereof within six months from such issuance in order that the title over any fully paid lot or
unit may be secured and delivered to the buyer in accordance herewith.
It must be stressed that the mortgage contract between PEPI and the petitioner is merely an accessory contract to the
principal three–year loan takeout from the petitioner by PEPI for its expansion project. It need not be belaboured that
“[a] mortgage is an accessory undertaking to secure the fulfillment of a principal obligation,”28 and it does not affect
the ownership of the property as it is nothing more than a lien thereon serving as security for a debt.29
Note that at the time PEPI mortgaged the property to the petitioner, the prevailing contract between respondents PEPI
and Dee was still the Contract to Sell, as Dee was yet to fully pay the purchase price of the property. On this point,
PEPI was acting fully well within its right when it mortgaged the property to the petitioner, for in a contract to sell,
ownership is retained by the seller and is not to pass until full payment of the purchase price.30 In other words, at the
time of the mortgage, PEPI was still the owner of the property. Thus, in China Banking Corporation v. Spouses
Lozada,31 the Court affirmed the right of the owner/developer to mortgage the property subject of development, to
wit: “[P.D.] No. 957 cannot totally prevent the owner or developer from mortgaging the subdivision lot or condominium
unit when the title thereto still resides in the owner or developer awaiting the full payment of the purchase price by
the installment buyer.”32 Moreover, the mortgage bore the clearance of the HLURB, in compliance with Section 18 of
P.D. No. 957, which provides that “[n]o mortgage on any unit or lot shall be made by the owner or developer without
prior written approval of the [HLURB].”
Nevertheless, despite the apparent validity of the mortgage between the petitioner and PEPI, the former is still bound
to respect the transactions between respondents PEPI and Dee. The petitioner was well aware that the properties
mortgaged by PEPI were also the subject of existing contracts to sell with other buyers. While it may be that the
petitioner is protected by Act No. 3135, as amended, it cannot claim any superior right as against the installment
buyers. This is because the contract between the respondents is protected by P.D. No. 957, a social justice measure
enacted primarily to protect innocent lot buyers.33 Thus, in Luzon Development Bank v. Enriquez,34 the Court
reiterated the rule that a bank dealing with a property that is already subject of a contract to sell and is protected by
the provisions of P.D. No. 957, is bound by the contract to sell.35
However, the transferee BANK is bound by the Contract to Sell and has to respect Enriquez’s rights thereunder. This is
because the Contract to Sell, involving a subdivision lot, is covered and protected by PD 957. x x x.
x x x Under these circumstances, the BANK knew or should have known of the possibility and risk that the assigned
properties were already covered by existing contracts to sell in favor of subdivision lot buyers. As observed by the
Court in another case involving a bank regarding a subdivision lot that was already subject of a contract to sell with a
third party:chanRoblesvirtualLawlibrary
“[The Bank] should have considered that it was dealing with a property subject of a real estate development project.
A reasonable person, particularly a financial institution x x x, should have been aware that, to finance the project,
funds other than those obtained from the loan could have been used to serve the purpose, albeit partially. Hence,
there was a need to verify whether any part of the property was already intended to be the subject of any other
contract involving buyers or potential buyers. In granting the loan, [the Bank] should not have been content merely
with a clean title, considering the presence of circumstances indicating the need for a thorough investigation of the
existence of buyers x x x. Wanting in care and prudence, the [Bank] cannot be deemed to be an innocent mortgagee.
x x x”36 (Citation omitted)chanroblesvirtualawlibrary
More so in this case where the contract to sell has already ripened into a contract of absolute sale.
There is nothing on record showing that the Memorandum of Agreement has been nullified or is the subject of pending
litigation; hence, it carries with it the presumption of validity.44 Consequently, the execution of the dation in payment
effectively extinguished respondent PEPI’s loan obligation to the petitioner insofar as it covers the value of the property
purchased by Dee. This negates the petitioner’s claim that PEPI must first redeem the property before it can cancel or
release the mortgage. As it now stands, the petitioner already stepped into the shoes of PEPI and there is no more
reason for the petitioner to refuse the cancellation or release of the mortgage, for, as stated by the Court in Luzon
Development Bank, in accepting the assigned properties as payment of the obligation, “[the bank] has assumed the
risk that some of the assigned properties are covered by contracts to sell which must be honored under PD 957.”45
Whatever claims the petitioner has against PEPI and AFP–RSBS, monetary or otherwise, should not prejudice the rights
and interests of Dee over the property, which she has already fully paid for.
As between these small lot buyers and the gigantic financial institutions which the developers deal with, it is obvious
that the law—as an instrument of social justice—must favor the weak.46 (Emphasis omitted)chanroblesvirtualawlibrary
Finally, the Court will not dwell on the arguments of AFP–RSBS given the finding of the OP that “[b]y its non–payment
of the appeal fee, AFP–RSBS is deemed to have abandoned its appeal and accepts the decision of the HLURB.”47 As
such, the HLURB decision had long been final and executory as regards AFP–RSBS and can no longer be altered or
modified.48
WHEREFORE, the petition for review is DENIED for lack of merit. Consequently, the Decision dated August 13, 2007
and Resolution dated March 13, 2008 of the Court of Appeals in CA–G.R. SP No. 86033 are AFFIRMED.
Petitioner Philippine National Bank and respondents Prime East Properties Inc. and Armed Forces of the Philippines–
Retirement and Separation Benefits System, Inc. are hereby ENJOINED to strictly comply with the Housing and Land
Use Regulatory Board Decision dated May 21, 2003, as modified by its Board of Commissioners Decision dated March
15, 2004 and Office of the President Decision dated August 4, 2004.ChanRoblesVirtualawlibrary

Moreover, PEPI brought to the attention of the Court the subsequent execution of a Memorandum of Agreement dated
November 22, 2006 by PEPI and the petitioner. Said agreement was executed pursuant to an Order dated February
23, 2004 by the Regional Trial Court (RTC) of Makati City, Branch 142, in SP No. 02–1219, a petition for Rehabilitation
under the Interim Rules of Procedure on Corporate Rehabilitation filed by PEPI. The RTC order approved PEPI’s modified
Rehabilitation Plan, which included the settlement of the latter’s unpaid obligations to its creditors by way of dacion of
real properties. In said order, the RTC also incorporated certain measures that were not included in PEPI’s plan, one of
which is that “[t]itles to the lots which have been fully paid shall be released to the purchasers within 90 days after the
dacion to the secured creditors has been completed.”37 Consequently, the agreement stipulated that as partial
settlement of PEPI’s obligation with the petitioner, the former absolutely and irrevocably conveys by way of “dacion en
pago” the properties listed therein,38 which included the lot purchased by Dee. The petitioner also committed to –
[R]elease its mortgage lien on fully paid Mortgaged Properties upon issuance of the certificates of title over the
Dacioned Properties in the name of the [petitioner]. The request for release of a Mortgaged Property shall be
accompanied with: (i) proof of full payment by the buyer, together with a certificate of full payment issued by the
Borrower x x x. The [petitioner] hereby undertakes to cause the transfer of the certificates of title over the Dacioned
Properties and the release of the Mortgaged Properties with reasonable dispatch.39ChanRoblesVirtualawlibrary

Dacion en pago or dation in payment is the delivery and transmission of ownership of a thing by the debtor to the
creditor as an accepted equivalent of the performance of the obligation.40 It is a mode of extinguishing an existing
obligation41 and partakes the nature of sale as the creditor is really buying the thing or property of the debtor, the
payment for which is to be charged against the debtor’s debt.42 Dation in payment extinguishes the obligation to the
extent of the value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties
by agreement – express or implied, or by their silence – consider the thing as equivalent to the obligation, in which
case the obligation is totally extinguished.43

49
G.R. No. 171298 April 15, 2013
SPOUSES OSCAR and THELMA CACAYORIN, Petitioners,
vs.
ARMED FORCES AND POLICE MUTUAL BENEFIT ASSOCIATION, INC., Respondent.
Consignation is necessarily judicial. Article 1258 of the Civil Code specifically provides that consignation shall be made
by depositing the thing or things due at the disposal of judicial authority. The said provision clearly precludes
consignation in venues other than the courts.
Assailed in this Petition for Review on Certiorari1 are the September 29, 2005 Decision2 of the Court of Appeals (CA)
which granted the Petition for Certiorari in CA-G.R. SP No. 84446 and its January 12, 2006 Resolution3 denying
petitioners' Motion for Reconsideration.4
Factual Antecedents
Petitioner Oscar Cacayorin (Oscar) is a member of respondent Armed Forces and Police Mutual Benefit Association, Inc.
(AFPMBAI), a mutual benefit association duly organized and existing under Philippine laws and engaged in the business
of developing low-cost housing projects for personnel of the Armed Forces of the Philippines, Philippine National Police,
Bureau of Fire Protection, Bureau of Jail Management and Penology, and Philippine Coast Guard. He filed an application
with AFPMBAI to purchase a piece of property which the latter owned, specifically Lot 5, Block 8, Phase I, Kalikasan
Mutual Homes, San Pedro, Puerto Princesa City (the property), through a loan facility.
On July 4, 1994, Oscar and his wife and co-petitioner herein, Thelma, on one hand, and the Rural Bank of San Teodoro
(the Rural Bank) on the other, executed a Loan and Mortgage Agreement 5 with the former as borrowers and the Rural
Bank as lender, under the auspices of Pag-IBIG or Home Development Mutual Fund’s Home Financing Program.
The Rural Bank issued an August 22, 1994 letter of guaranty6 informing AFPMBAI that the proceeds of petitioners’
approved loan in the amount of ₱77,418.00 shall be released to AFPMBAI after title to the property is transferred in
petitioners’ name and after the registration and annotation of the parties’ mortgage agreement.
On the basis of the Rural Bank’s letter of guaranty, AFPMBAI executed in petitioners’ favor a Deed of Absolute Sale, 7 and
a new title – Transfer Certificate of Title No. 370178 (TCT No. 37017) – was issued in their name, with the corresponding
annotation of their mortgage agreement with the Rural Bank, under Entry No. 3364.9
Unfortunately, the Pag-IBIG loan facility did not push through and the Rural Bank closed and was placed under
receivership by the Philippine Deposit Insurance Corporation (PDIC). Meanwhile, AFPMBAI somehow was able to take
possession of petitioners’ loan documents and TCT No. 37017, while petitioners were unable to pay the
loan/consideration for the property.
AFPMBAI made oral and written demands for petitioners to pay the loan/ consideration for the property.10
In July 2003, petitioners filed a Complaint11 for consignation of loan payment, recovery of title and cancellation of
mortgage annotation against AFPMBAI, PDIC and the Register of Deeds of Puerto Princesa City. The case was docketed
as Civil Case No. 3812 and raffled to Branch 47 of the Regional Trial Court (RTC) of Puerto Princesa City (Puerto
Princesa RTC). Petitioners alleged in their Complaint that as a result of the Rural Bank’s closure and PDIC’s claim that
their loan papers could not be located, they were left in a quandary as to where they should tender full payment of the
loan and how to secure cancellation of the mortgage annotation on TCT No. 37017. Petitioners prayed, thus:
50
a. That after the filing of this complaint an order be made allowing the consignation x x x of Php77,418.00.
b. For the court to compute and declare the amount of interest to be paid by the plaintiffs and thereafter to allow the
consignation of the interest payments in order to give way for the full discharge of the loan.
c. To order the AFPMBAI to turn over to the custody of the court the loan records and title (T.C.T. No. 37017) of the
plaintiffs if the same are in their possession.
d. To declare the full payment of the principal loan and interest and ordering the full discharge from mortgage of the
property covered by T.C.T. No. 37017.
e. To order the Register of Deeds of Puerto Princesa City to cancel the annotation of real estate mortgage under Entry
No. 3364 at the back of T.C.T. No. 37017.
f. Thereafter, to turn over to the plaintiffs their title free from the aforesaid mortgage loan. 12
AFPMBAI filed a Motion to Dismiss13 claiming that petitioners’ Complaint falls within the jurisdiction of the Housing and
Land Use Regulatory Board (HLURB) and not the Puerto Princesa RTC, as it was filed by petitioners in their capacity as
buyers of a subdivision lot and it prays for specific performance of contractual and legal obligations decreed under
Presidential Decree No. 95714 (PD 957). It added that since no prior valid tender of payment was made by petitioners,
the consignation case was fatally defective and susceptible to dismissal.
Ruling of the Regional Trial Court
In an October 16, 2003 Order,15 the trial court denied AFPMBAI’s Motion to Dismiss, declaring that since title has been
transferred in the name of petitioners and the action involves consignation of loan payments, it possessed jurisdiction
to continue with the case. It further held that the only remaining unsettled transaction is between petitioners and PDIC
as the appointed receiver of the Rural Bank.
AFPMBAI filed a Motion for Reconsideration,16 which the trial court denied in its March 19, 2004 Order.17
Ruling of the Court of Appeals
AFPMBAI thus instituted CA-G.R. SP No. 84446, which is a Petition for Certiorari18 raising the issue of jurisdiction. On
September 29, 2005, the CA rendered the assailed Decision decreeing as follows:
WHEREFORE, premises considered, this Petition is GRANTED. The Assailed 16 October 2003 and 19 March 2004
Orders of the public respondent judge are hereby ordered VACATED and SET ASIDE.
The CA held that Civil Case No. 3812 is a case for specific performance of AFPMBAI’s contractual and statutory
obligations as owner/developer of Kalikasan Mutual Homes, which makes PD 957 applicable and thus places the case
within the jurisdiction of the HLURB. It said that since one of the remedies prayed for is the delivery to petitioners of
TCT No. 37017, the case is cognizable exclusively by the HLURB.
Petitioners moved for reconsideration which was denied by the CA in its January 12, 2006 Resolution.
Hence, the instant Petition.
Issue
The sole issue that must be resolved in this Petition is: Does the Complaint in Civil Case No. 3812 fall within the
exclusive jurisdiction of the HLURB?
Petitioners’ Arguments
Petitioners assert that the elements which make up a valid case for consignation are present in their Complaint. They
add that since a deed of absolute sale has been issued in their favor, and possession of the property has been
surrendered to them, not to mention that title has been placed in their name, the HLURB lost jurisdiction over their
case. And for this same reason, petitioners argue that their case may not be said to be one for specific performance of
contractual and legal obligations under PD 957 as nothing more was left to be done in order to perfect or consolidate
their title.
Petitioners thus pray that the herein assailed Decision and Resolution of the CA be set aside, and that the trial court
be ordered to continue with the proceedings in Civil Case No. 3812.
Respondent's Arguments
Respondent, on the other hand, insists in its Comment20 that jurisdiction over petitioners’ case lies with the HLURB, as
it springs from their contractual relation as seller and buyer, respectively, of a subdivision lot. The prayer in petitioners’
Complaint involves the surrender or delivery of the title after full payment of the purchase price, which respondent
claims are reciprocal obligations in a sale transaction covered by PD 957. Respondent adds that in effect, petitioners
are exacting specific performance from it, which places their case within the jurisdiction of the HLURB.
Our Ruling
The Court grants the Petition.
The Complaint makes out a case for consignation.
The settled principle is that "the allegations of the Complaint determine the nature of the action and consequently the
jurisdiction of the courts. This rule applies whether or not the plaintiff is entitled to recover upon all or some of the
claims asserted therein as this is a matter that can be resolved only after and as a result of the trial." 21
Does the Complaint in Civil Case No. 3812 make out a case for consignation? It alleges that:
6.0 – Not long after however, RBST22 closed shop and defendant Philippine Deposit Insurance Corporation (PDIC)
was appointed as its receiver. The plaintiffs, through a representative, made a verbal inquiry to the PDIC regarding
the payment of their loan but were told that it has no information or record of the said loan. This made [sic] the
plaintiffs in quandary as to where or whom they will pay their loan, which they intend to pay in full, so as to cancel
the annotation of mortgage in their title.
7.0 – It was discovered that the loan papers of the plaintiffs, including the duplicate original of their title, were in the
possession of defendant AFPMBAI. It was unclear though why the said documents including the title were in the
possession of AFPMBAI. These papers should have been in RBST’s possession and given to PDIC after its closure in
the latter’s capacity as receiver.
8.0 – Plaintiffs are now intending to pay in full their real estate loan but could not decide where to pay the same
because of RBST [sic] closure and PDIC’s failure to locate the loan records and title. This court’s intervention is now
needed in order to determine to [sic] where or whom the loan should be paid.
51
9.0 – Plaintiffs hereby respectfully prays [sic] for this court to allow the deposit of the amount of Php77,418.00 as
full payment of their principal loan, excluding interest, pursuant to the Loan and Mortgage Agreement on 4 July
1994.23
From the above allegations, it appears that the petitioners’ debt is outstanding; that the Rural Bank’s receiver, PDIC,
informed petitioners that it has no record of their loan even as it took over the affairs of the Rural Bank, which on
record is the petitioners’ creditor as per the July 4, 1994 Loan and Mortgage Agreement; that one way or another,
AFPMBAI came into possession of the loan documents as well as TCT No. 37017; that petitioners are ready to pay the
loan in full; however, under the circumstances, they do not know which of the two – the Rural Bank or AFPMBAI –
should receive full payment of the purchase price, or to whom tender of payment must validly be made.
Under Article 1256 of the Civil Code,24 the debtor shall be released from responsibility by the consignation of the thing
or sum due, without need of prior tender of payment, when the creditor is absent or unknown, or when he is
incapacitated to receive the payment at the time it is due, or when two or more persons claim the same right to collect,
or when the title to the obligation has been lost. Applying Article 1256 to the petitioners’ case as shaped by the
allegations in their Complaint, the Court finds that a case for consignation has been made out, as it now appears that
there are two entities which petitioners must deal with in order to fully secure their title to the property: 1) the Rural
Bank (through PDIC), which is the apparent creditor under the July 4, 1994 Loan and Mortgage Agreement; and 2)
AFPMBAI, which is currently in possession of the loan documents and the certificate of title, and the one making
demands upon petitioners to pay. Clearly, the allegations in the Complaint present a situation where the creditor is
unknown, or that two or more entities appear to possess the same right to collect from petitioners. Whatever transpired
between the Rural Bank or PDIC and AFPMBAI in respect of petitioners’ loan account, if any, such that AFPMBAI came
into possession of the loan documents and TCT No. 37017, it appears that petitioners were not informed thereof, nor
made privy thereto.
Indeed, the instant case presents a unique situation where the buyer, through no fault of his own, was able to obtain
title to real property in his name even before he could pay the purchase price in full. There appears to be no vitiated
consent, nor is there any other impediment to the consummation of their agreement, just as it appears that it would
be to the best interests of all parties to the sale that it be once and for all completed and terminated. For this reason,
Civil Case No. 3812 should at this juncture be allowed to proceed.
Moreover, petitioners’ position is buttressed by AFPMBAI’s own admission in its Comment25 that it made oral and written
demands upon the former, which naturally aggravated their confusion as to who was their rightful creditor to whom
payment should be made – the Rural Bank or AFPMBAI. Its subsequent filing of the Motion to Dismiss runs counter to
its demands to pay. If it wanted to be paid with alacrity, then it should not have moved to dismiss Civil Case No. 3812,
which was brought precisely by the petitioners in order to be able to finally settle their obligation in full.
Finally, the lack of prior tender of payment by the petitioners is not fatal to their consignation case. They filed the case
for the exact reason that they were at a loss as to which between the two – the Rural Bank or AFPMBAI – was entitled
to such a tender of payment. Besides, as earlier stated, Article 1256 authorizes consignation alone, without need of
prior tender of payment, where the ground for consignation is that the creditor is unknown, or does not appear at the
place of payment; or is incapacitated to receive the payment at the time it is due; or when, without just cause, he
refuses to give a receipt; or when two or more persons claim the same right to collect; or when the title of the obligation
has been lost.
Consignation is necessarily judicial; hence, jurisdiction lies with the RTC, not with the HLURB.
On the question of jurisdiction, petitioners’ case should be tried in the Puerto Princesa RTC, and not the HLURB.
Consignation is necessarily judicial,26 as the Civil Code itself provides that consignation shall be made by depositing
the thing or things due at the disposal of judicial authority, thus:
Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom
the tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases.
The consignation having been made, the interested parties shall also be notified thereof.
The above provision clearly precludes consignation in venues other than the courts.1âwphi1 Elsewhere, what may be
made is a valid tender of payment, but not consignation. The two, however, are to be distinguished.
Tender of payment must be distinguished from consignation. Tender is the antecedent of consignation, that is, an act
preparatory to the consignation, which is the principal, and from which are derived the immediate consequences which
the debtor desires or seeks to obtain. Tender of payment may be extrajudicial, while consignation is necessarily judicial,
and the priority of the first is the attempt to make a private settlement before proceeding to the solemnities of
consignation. (8 Manresa 325).27
While it may be true that petitioners’ claim relates to the terms and conditions of the sale of AFPMBAI’s subdivision lot,
this is overshadowed by the fact that since the Complaint in Civil Case No. 3812 pleads a case for consignation, the
HLURB is without jurisdiction to try it, as such case may only be tried by the regular courts.
WHEREFORE, premises considered, the Petition is GRANTED. The September 29, 2005 Decision and January 12, 2006
Resolution of the Court of Appeals in CA-G.R. SP No. 84446 are ANNULLED and SET ASIDE. The October 16, 2003 and
March 19, 2004 Orders of the Regional Trial Court of Puerto Princesa City, Branch 47, are REINSTATED, and the case
is REMANDED to the said court for continuation of the proceedings.
52
G.R. No. 172577 January 19, 2011
SOLEDAD DALTON,
vs.
Petitioner, FGR REALTY AND DEVELOPMENT CORPORATION, FELIX NG, NENITA NG, and FLORA R. DAYRIT
or FLORA REGNER, Respondents.
The Case
This is a petition1 for review on certiorari under Rule 45 of the Rules of Court. The petition challenges the 9 November
2005 Decision2 and 10 April 2006 Resolution3 of the Court of Appeals in CA-G.R. CV No. 76536. The Court of Appeals
affirmed the 26 February 2002 Decision4 of the Regional Trial Court (RTC), Judicial Region 7, Branch 13, Cebu City, in
Civil Case No. CEB 4218.
The Facts
Flora R. Dayrit (Dayrit) owned a 1,811-square meter parcel of land located at the corner of Rama Avenue and Velez
Street in Cebu City. Petitioner Soledad Dalton (Dalton), Clemente Sasam, Romulo Villalonga, Miguela Villarente, Aniceta
Fuentes, Perla Pormento, Bonifacio Cabajar, Carmencita Yuson, Angel Ponce, Pedro Regudo, Pedro Quebedo, Mary
Cabanlit, Marciana Encabo and Dolores Lim (Sasam, et al.) leased portions of the property.
In June 1985, Dayrit sold the property to respondent FGR Realty and Development Corporation (FGR). In August 1985,
Dayrit and FGR stopped accepting rental payments because they wanted to terminate the lease agreements with Dalton
and Sasam, et al.
In a complaint5 dated 11 September 1985, Dalton and Sasam, et al. consigned the rental payments with the RTC. They
failed to notify Dayrit and FGR about the consignation. In motions dated 27 March 1987, 6 10 November 1987,7 8 July
1988,8 and 28 November 1994,9 Dayrit and FGR withdrew the rental payments. In their motions, Dayrit and FGR
reserved the right to question the validity of the consignation.
Dayrit, FGR and Sasam, et al. entered into compromise agreements dated 25 March 199710 and 20 June 1997.11 In
the compromise agreements, they agreed to abandon all claims against each other. Dalton did not enter into a
compromise agreement with Dayrit and FGR.
The RTC’s Ruling
In its 26 February 2002 Decision, the RTC dismissed the 11 September 1985 complaint and ordered Dalton to vacate
the property. The RTC held that:
Soledad Dalton built a house which she initially used as a dwelling and store space. She vacated the premises when
her children got married. She transferred her residence near F. Ramos Public Market, Cebu City.
She constructed the 20 feet by 20 feet floor area house sometime in 1973. The last monthly rental was ₱69.00. When
defendants refused to accept rental and demanded vacation of the premises, she consignated [sic] her monthly rentals
in court.
It is very clear from the facts that there was no valid consignation made.
The requisites of consignation are as follows:
1. The existence of a valid debt.
2. Valid prior tender, unless tender is excuse [sic];
3. Prior notice of consignation (before deposit)
4. Actual consignation (deposit);
5. Subsequent notice of consignation;
Requisite Nos. 3 and 5 are absent or were not complied with. It is very clear that there were no prior notices of
consignation (before deposit) and subsequent notices of consignation (after deposit)
Besides, the last deposit was made on December 21, 1988. At the time Dalton testified on December 22, 1999, she
did not present evidence of payment in 1999. She had not, therefore, religiously paid her monthly obligation.
By clear preponderance of evidence, defendants have established that plaintiff was no longer residing at Eskina Banawa
at the time she testified in court. She vacated her house and converted it into a store or business establishment. This
is buttressed by the testimony of Rogelio Capacio, the court’s appointed commissioner, who submitted a report, the
full text of which reads as follows:
REPORT AND/OR OBSERVATION
"The store and/or dwelling subject to ocular inspection is stuated [sic] on the left portion of the road which is about
fifty-five (55) meters from the corner of Banawa-Guadalupe Streets, when turning right heading towards the
direction of Guadalupe Church, if travelling from the Capitol Building.
I observed that when we arrived at the ocular inspection site, Mrs. Soledad Dalton with the use of a key opened
the lock of a closed door. She claimed that it was a part of the dwelling which she occupies and was utilized as a
store. There were few saleable items inside said space."
Soledad Dalton did not take exception to the said report.
Two witnesses who were former sub-lessees testified and clearly established that Mrs. Dalton use the house for
business purposes and not for dwelling.12
Dalton appealed to the Court of Appeals.
The Court of Appeals’ Ruling
In its 9 November 2005 Decision, the Court of Appeals affirmed the RTC’s 26 February 2002 Decision. The Court of
Appeals held that:
After a careful review of the facts and evidence in this case, we find no basis for overturning the decision of the lower
court dismissing plaintiffs-appellants’ complaint, as we find that no valid consignation was made by the plaintiff-
appellant.
Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot
accept or refuses to accept payment and generally requires a prior tender of payment. In order that consignation may
be effective, the debtor must show that: (1) there was a debt due; (2) the consignation of the obligation had been
made because the creditor to whom tender of payment was made refused to accept it, or because he was absent or
incapacitated, or because several persons claimed to be entitled to receive the amount due or because the title to the
obligation has been lost; (3) previous notice of the consignation had been given to the person interested in the
performance of the obligation; (4) the amount due was placed at the disposal of the court; and (5) after the
consignation had been made the person interested was notified thereof. Failure in any of these requirements is enough
ground to render a consignation ineffective.
53
Consignation is made by depositing the proper amount to the judicial authority, before whom the tender of payment
and the announcement of the consignation shall be proved. All interested parties are to be notified of the consignation.
It had been consistently held that compliance with these requisites is mandatory.
No error, therefore, can be attributed to the lower court when it held that the consignation made by the plaintiff-
appellant was invalid for failure to meet requisites 3 and 5 of a valid consignation (i.e., previous notice of the
consignation given to the person interested in the performance of the obligation and, after the consignation had been
made, the person interested was notified thereof).
Plaintiff-appellant failed to notify defendants-appellees of her intention to consign the amount due to them as rentals.
She, however, justifies such failure by claiming that there had been substantial compliance with the said requirement
of notice upon the service of the complaint on the defendants-appellees together with the summons.
We do not agree with such contention.
The prevailing rule is that substantial compliance with the requisites of a valid consignation is not enough. In Licuanan
vs. Diaz, reiterating the ruling in Soco vs. Militante, the Supreme Court had the occasion to rule thus:
"In addition, it must be stated that in the case of Soco v. Militante (123 SCRA 160, 166-167 [1983]), this Court ruled
that the codal provisions of the Civil Code dealing with consignation (Articles 1252-1261) should be accorded
mandatory construction —
We do not agree with the questioned decision. We hold that the essential requisites of a valid consignation must
be complied with fully and strictly in accordance with the law. Articles 1256-1261, New Civil Code. That these
Articles must be accorded a mandatory construction is clearly evident and plain from the very language of the codal
provisions themselves which require absolute compliance with the essential requisites therein provided. Substantial
compliance is not enough for that would render only directory construction of the law. The use of the words "shall"
and "must [sic] which are imperative, operating to impose a duty which may be enforced, positively indicated that
all the essential requisites of a valid consignation must be complied with. The Civil Code Articles expressly and
explicitly direct what must be essentially done in order that consignation shall be valid and effectual..."
Clearly then, no valid consignation was made by the plaintiff-appellant for she did not give notice to the defendants-
appellees of her intention to so consign her rental payments. Without any announcement of the intention to resort to
consignation first having been made to persons interested in the fulfillment of the obligation, the consignation as a
means of payment is void.
As to the other issues raised by the plaintiff-appellant in her second and third assigned errors, we hold that the ruling
of the lower court on such issues is supported by the evidence adduced in this case.
That plaintiff-appellant is not residing at the leased premises in Eskina Banawa and that she is using the same for
business purposes, not as dwelling place, is amply supported by the testimony of two of plaintiff-appellant’s sub-
lessees. The Commissioner’s Report submitted by Rogelio Capacio, who was commissioned by the lower court to
conduct an ocular inspection of the leased premises, further lends support to the lower court’s findings. On the other
hand, plaintiff-appellant only has her self-serving claims that she is residing at the leased premises in Eskina Banawa
to prove her continued use of the leased premises as dwelling place.
There is thus no merit to plaintiff-appellant’s fourth assigned error. The lower court acted within its authority in ordering
the plaintiff-appellant to vacate the leased premises. The evidence shows that plaintiff-appellant had failed to
continuously pay the rentals due to the defendants-appellees. It was therefore within the powers of the lower court to
grant such other relief and remedies equitable under the circumstances.
In sum, there having been no valid consignation and with the plaintiff-appellant having failed to pay the rentals due to
the defendants-appellees, no error can be attributed to the lower court in rendering its assailed decision.13
Hence, the present petition. Dalton raises as issues that the Court of Appeals erred in ruling that (1) the consignation
was void, and (2) Dalton failed to pay rent.
The Court’s Ruling
The petition is unmeritorious.
Dalton claims that, "the issue as to whether the consignation made by the petitioner is valid or not for lack of notice
has already been rendered moot and academic with the withdrawal by the private respondents of the amounts
consigned and deposited by the petitioner as rental of the subject premises."14
The Court is not impressed. First, in withdrawing the amounts consigned, Dayrit and FGR expressly reserved the right
to question the validity of the consignation. In Riesenbeck v. Court of Appeals,15 the Court held that:
A sensu contrario, when the creditor’s acceptance of the money consigned is conditional and with
reservations, he is not deemed to have waived the claims he reserved against his debtor. Thus, when the
amount consigned does not cover the entire obligation, the creditor may accept it, reserving his right to the balance
(Tolentino, Civil Code of the Phil., Vol. IV, 1973 Ed., p. 317, citing 3 Llerena 263). The same factual milieu obtains
here because the respondent creditor accepted with reservation the amount consigned in court by the
petitioner-debtor. Therefore, the creditor is not barred from raising his other claims, as he did in his answer
with special defenses and counterclaim against petitioner-debtor.
As respondent-creditor’s acceptance of the amount consigned was with reservations, it did not completely extinguish
the entire indebtedness of the petitioner-debtor. It is apposite to note here that consignation is completed at the
time the creditor accepts the same without objections, or, if he objects, at the time the court declares
that it has been validly made in accordance with law.16 (Emphasis supplied)
Second, compliance with the requisites of a valid consignation is mandatory. Failure to comply strictly with any of
the requisites will render the consignation void. Substantial compliance is not enough.
In Insular Life Assurance Company, Ltd. v. Toyota Bel-Air, Inc.,17 the Court enumerated the requisites of a valid
consignation: (1) a debt due; (2) the creditor to whom tender of payment was made refused without just cause to
accept the payment, or the creditor was absent, unknown or incapacitated, or several persons claimed the same right
to collect, or the title of the obligation was lost; (3) the person interested in the performance of the obligation
was given notice before consignation was made; (4) the amount was placed at the disposal of the court; and
(5) the person interested in the performance of the obligation was given notice after the consignation
was made.
Articles 1257 and 1258 of the Civil Code state, respectively:
Art. 1257. In order that the consignation of the thing due may release the obligor, it must first be
announced to the persons interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which
regulate payment.
54
Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom
the tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases.
The consignation having been made, the interested parties shall also be notified thereof.
The giving of notice to the persons interested in the performance of the obligation is mandatory. Failure to notify the
persons interested in the performance of the obligation will render the consignation void. In Ramos v. Sarao,18 the
Court held that, "All interested parties are to be notified of the consignation. Compliance with [this
requisite] is mandatory."19 In Valdellon v. Tengco,20 the Court held that:
Under Art. 1257 of our Civil Code, in order that consignation of the thing due may release the obligor, it
must first be announced to the persons interested in the fulfillment of the obligation. The consignation
shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment.
In said Article 1258, it is further stated that the consignation having been made, the interested party shall
also be notified thereof.21 (Emphasis supplied)
In Soco v. Militante, et al.,22 the Court held that:
We hold that the essential requisites of a valid consignation must be complied with fully and strictly in
accordance with the law, Articles 1256 to 1261, New Civil Code. That these Articles must be accorded a mandatory
construction is clearly evident and plain from the very language of the codal provisions themselves which require
absolute compliance with the essential requisites therein provided. Substantial compliance is not enough for
that would render only a directory construction to the law. The use of the words "shall" and "must" which are
imperative, operating to impose a duty which may be enforced, positively indicate that all the essential requisites of
a valid consignation must be complied with. The Civil Code Articles expressly and explicitly direct what must
be essentially done in order that consignation shall be valid and effectual.23 (Emphasis supplied)
Dalton claims that the Court of Appeals erred in ruling that she failed to pay rent. The Court is not impressed. Section
1, Rule 45 of the Rules of Court states that petitions for review on certiorari "shall raise only questions of law which
must be distinctly set forth." In Pagsibigan v. People,24 the Court held that:
A petition for review under Rule 45 of the Rules of Court should cover only questions of law. Questions of fact are
not reviewable. A question of law exists when the doubt centers on what the law is on a certain set of facts. A question
of fact exists when the doubt centers on the truth or falsity of the alleged facts.1avvphi1
There is a question of law if the issue raised is capable of being resolved without need of reviewing the probative value
of the evidence. The issue to be resolved must be limited to determining what the law is on a certain set of facts. Once
the issue invites a review of the evidence, the question posed is one of fact. 25
Whether Dalton failed to pay rent is a question of fact. It is not reviewable.
The factual findings of the lower courts are binding on the Court. The exceptions to this rule are (1) when there is
grave abuse of discretion; (2) when the findings are grounded on speculation; (3) when the inference made is
manifestly mistaken; (4) when the judgment of the Court of Appeals is based on a misapprehension of facts; (5) when
the factual findings are conflicting; (6) when the Court of Appeals went beyond the issues of the case and its findings
are contrary to the admissions of the parties; (7) when the Court of Appeals overlooked undisputed facts which, if
properly considered, would justify a different conclusion; (8) when the facts set forth by the petitioner are not disputed
by the respondent; and (9) when the findings of the Court of Appeals are premised on the absence of evidence and
are contradicted by the evidence on record.26 Dalton did not show that any of these circumstances is present.
WHEREFORE, the Court DENIES the petition. The Court AFFIRMS the 9 November 2005 Decision and 10 April 2006
Resolution of the Court of Appeals in CA-G.R. CV No. 76536.
G.R. No. 160033, July 01, 2015
TAGAYTAY REALTY CO., INC., Petitioner, v. ARTURO G. GACUTAN, Respondent.
DECISION
BERSAMIN, J.:
The Court reiterates the right of the installment buyer of a subdivision lot to withhold payment of his amortizations for
the duration that the subdivision developer has not complied with its contractual undertaking to build the promised
amenities in the subdivision.
The Case
On appeal by the subdivision developer is the decision promulgated on May 29, 2003, 1 whereby the Court of Appeals
(CA) upheld the ruling in favor of the installment buyer issued on December 6, 2001 by the Office of the President
(OP).2 By such ruling, the OP affirmed the July 14, 1997 decision3 rendered by the Housing and Land Use Regulatory
Board (HLURB) Board of Commissioners adopting the HLURB Arbiter's decision dated March 22, 1995. 4cralawrednad
Antecedents
On September 6, 1976, the respondent entered into a contract to sell with the petitioner for the purchase on installment
of a residential lot with an area of 308 square meters situated in the Foggy Heights Subdivision then being developed
by the petitioner.5 Earlier, on June 30, 1976, the petitioner executed an express undertaking in favor of the respondent,
as follows:6
We hereby undertake to complete the development of the roads, curbs, gutters, drainage system, water and electrical
systems, as well as all the amenities to be introduced in FOGGY HEIGHTS SUBDIVISION, such as, swimming pool,
pelota court, tennis and/or basketball court, bath house, children's playground and a clubhouse within a period of two
years from 15 July 1976, on the understanding that failure on their part to complete such development within the
stipulated period shall give the VENDEE the option to suspend payment of the monthly amortization on the lot/s he/she
purchased until completion of such development without incurring penalty interest.
It is clearly understood, however, that the period or periods during which we cannot pursue said development by
reason of any act of God, any act or event constituting force majeure or fortuitous event, or any restriction, regulation,
or prohibition by the government or any of its branches or instrumentalities, shall suspend the running of said 2-year
period and the running thereof shall resume upon the cessation of the cause of the stoppage or suspension of said
development.
In his letter dated November 12, 1979,7 the respondent notified the petitioner that he was suspending his amortizations
because the amenities had not been constructed in accordance with the undertaking. Despite receipt of the respondent's
other communications requesting updates on the progress of the construction of the amenities so that he could resume
his amortization,8 the petitioner did not reply. Instead, on June 10, 1985, the petitioner sent to him a statement of
account demanding the balance of the price, plus interest and penalty. 9 He refused to pay the interest and penalty.
On October 4, 1990, the respondent sued the petitioner for specific performance in the HLURB, praying that the
petitioner be ordered to accept his payment of the balance of the contract without interest and penalty, and to deliver
to him the title of the property.10cralawrednad
In its answer,11 the petitioner sought to be excused from performing its obligations under the contract, invoking Article
1267 of the Civil Code as its basis. It contended that the depreciation of the Philippine Peso since the time of the
execution of the contract, the increase in the cost of labor and construction materials, and the increase in the value of
55
the lot in question were valid justifications for its release from the obligation to construct the amenities.
In its positiOn paper,12 the petitiOner stated that it had purposely suspended the construction of the amenities which
would have deteriorated at any rate because its lot buyers had not constructed their houses in the subdivision.
On March 22, 1995, the HLURB Arbiter ruled m favor of the respondent,13 to wit:cralawlawlibrary
WHEREFORE, premises considered, respondents are hereby ordered to accept the payment of the balance of the
contract price in the amount of Eight Thousand Five Hundred Eighty Seven and 80/100 Pesos (P8,587.80) without
regular and penalty interest and, thereafter, to execute and deliver to complainant the absolute deed of sale covering
the sale of property subj,ct of this complaint, together with the valid title over the said lot. 14
The petitioner appealed, but the HLURB Board of Commissioners affirmed the ruling of the HLURB Arbiter on July 14,
1997.15 Upon the denial of its motion for reconsideration, the petitioner appealed to the OP. 1
On December 6, 2001, the OP upheld the decision of the HLURB Board of Commissioners.17 The OP later denied the
petitioner's motion for reconsideration.18cralawrednad
On appeal, the CA affirmed the OP through the assailed decision promulgated on May 29,
2003,19 disposing:cralawlawlibrary
WHEREFORE, premises considered and finding no reversible error in the challenged Decision and Order dated
December 6, 2001, and July 1, 2002, respectively, of the Office of the President in OP Case No. 98-C-8261 said Decision
and Order are AFFIRMED and UPHELD, and the petition is DISMISSED for lack of merit.
The CA denied the petitioner's motion for reconsideration.21cralawrednad
Issues
In this appeal by petition for review on certiorari, the petitioner contends that the CA erred in affirming the incorrect
findings of the OP in a way probably not in accord with law; and in declaring that the respondent was not guilty of
laches.
The petitioner submits that the CA, by observing that the petitioner did not fulfill its obligation to finish the subdivision
project and that it had itself admitted not having finished the project, did not consider that it must be discharged
because extraordinary and unforeseeable circumstances had rendered its duty to perform its obligation so onerous that
to insist on the performance would have resulted in its economic ruin; that the Court should consider the practical
circumstances surrounding the construction of the luxurious amenities of the project; that the luxurious amenities of
the project would only be exposed to the elements, resulting in wastage and loss of resources, because none of the lot
buyers had constructed any house in the subdivision; that delaying the construction for that reason was reasonable on
its part considering that no one would have benefited from the amenities anyway, and was also a sound business
practice because the construction would be at great cost to it as the developer; that another justification for the non-
construction was its having suffered extreme economic hardships during the political and economic turmoil of the 1980s
that the parties did not foresee at the time they entered into their contract; that under Article 1267 of the Civil Code,
equity demanded a certain economic equilibrium between the prestation and the counter-prestation, and did not permit
the unlimited impoverishment of one party for the benefit of the other by the excessive rigidity of the principle of the
obligatory force of contracts; that as the debtor, it should be partially excused or altogether released from its obligations
due to the extraordinary obstacles to the prestation, which could be overcome only by a sacrifice that would be
absolutely disproportionate, or with very grave risks, or by violating some important duties; and that the CA thereby
erred in closing its eyes to the realities, and in opting not to apply the principles of equity in favor of applying the terms
of the agreement even if doing so would cause the economic ruin of one of the parties.
The petitioner further submits that the CA erred in declaring that it was apparent that there was no "unreasonable
failure" on the part of the respondent because he had made timely written demands on November 12, 1979, February
11, 1983, March 20, 1984, June 24, 1985 and November 16, 1988. It urges that the CA's error consisted in its confusing
laches as the failure to assert a right, notwithstanding that jurisprudence has considered laches to be the unreasonable
failure to assert a claim that, by exercising due diligence, could or should be done earlier; that laches was not, in legal
significance, mere delay, but a delay that worked a disadvantage to another; that the letters of the respondent could
hardly be construed as motivated by prudence and good faith; that the economy had worsened between 1979 and
1988, and such worsening became a factor that raised the cost of real estate development by leaps and bounds; and
that the respondent, whose actuations smacked of bad faith and opportunism at its expense, had then appeared out
of nowhere to seize the opportunity presented by the real estate boom of the early 1990s, despite having been silent
and having failed to act for a long time, evincing his belief of not having any right at all.
In his comment, the respondent asserts that the submissions of the petitioner did not warrant the non-construction of
the amemt1es; that Article 1159 of the Civil Code provides that obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith; that neither party could unilaterally and
upon his own exclusive volition escape his obligations under the contract unless for causes sufficient in law and
pronounced adequate by a competent tribunal; that correlative to Article 1159 is Article 1308 of the Civil Code which
holds that the validity or compliance of a contract cannot be left to the will of one party; that a party could not revoke
or renounce a contract without the consent of the other, nor could a party have a contract set aside on the ground that
he had made a bad bargain; that he was not liable for the interest because it was not expressly stipulated in the
contract pursuant to Article 1956 of the Civil Code; that no penalty should be imposed on him by virtue of the
undertaking clearly stating that the two-year period for the completion of the amenities would be suspended only if the
development could not be pursued "by reason of any act God, any act or event constituting force majeure or fortuitous
event; or any restriction, regulation, or prohibition by the government or any of its branches or instrumentalities;" that
the reason given by the petitioner that "the contemplated amenities could not be constructed as they would have only
been left exposed to the elements and would have come to naught on account of the fact that there are no persons
residing thereat" did not justify or excuse the non construction of the amenities; that the petitioner could not seek
refuge in Article 1267 of the Civil Code by merely alleging inflation without laying down the legal and factual basis to
justify the release from its obligation; that his written extrajudicial demands negated the defense of laches; that he
did not fail to assert his right, or abandon it; and that his written extrajudicial demands wiped out the period that had
already lapsed and started the prescriptive period anew.
In short, was the petitioner released from its obligation to construct the amenities in the Foggy Heights Subdivision?
Ruling of the Court
The appeal is partly meritorious.
1. Petitioner was not relieved from its statutory and contractual obligations to complete the
amenities
The arguments of the petitioner to be released from its obligation to construct the amenities lack persuasion.
To start with, the law is not on the side of the petitioner.
Under Section 20 of Presidential Decree No. 957, all developers, including the petitioner, are mandated to complete
their subdivision projects, including the amenities, within one year from the issuance of their licenses. The provision
reads:cralawlawlibrary
Section 20. Time of Completion. - Every owner or developer shall construct and provide the facilities, improvements,
infrastructures and other forms of development, including water supply and lighting facilities, which are offered and
indicated in the approved subdivision or condominium plans, brochures, prospectus, printed matters, letters or in
any form of advertisement, within one year from the date of the issuance of the license for the subdivision or
condominium project or such other period of time as maybe fixed by the Authority.
56
Pursuant to Section 30 of Presidential Decree No. 957,22 the amenities, once constructed, are to be maintained by the
developer like the petitioner until a homeowners' association has been organized to manage the amenities.
There is no question that the petitioner did not comply with its legal obligation to complete the construction of the
subdivision project, including the amenities, within one year from the issuance of the license. Instead, it unilaterally
opted to suspend the construction of the amenities to avoid incurring maintenance expenses. In so opting, it was not
driven by any extremely difficult situation that would place it at any disadvantage, but by its desire to benefit from
cost savings. Such cost-saving strategy dissuaded the lot buyers from constructing their houses in the subdivision, and
from residing therein.
Considering that the petitioner's unilateral suspension of the construction of the amenities was intended to save itself
from costs, its plea for relief from its contractual obligations was properly rejected because it would thereby gain a
position of advantage at the expense of the lot owners like the respondent. Its invocation of Article 1267 of the Civil
Code, which provides that "(w)hen the service has become so difficult as to be manifestly beyond the contemplation
of the parties, the obligor may also be released therefrom in whole or in part," was factually unfounded. For Article
1267 to apply, the following conditions should concur, namely: (a) the event or change in circumstances could not
have been foreseen at the time of the execution of the contract; (b) it makes the performance of the contract extremely
difficult but not impossible; (c) it must not be due to the act of any of the parties; and (d) the contract is for a future
prestation.23 The requisites did not concur herein because the difficulty of performance under Article 1267 of the Civil
Code should be such that one party would be placed at a disadvantage by the unforeseen event. 24 Mere inconvenience,
or unexepected impediments, or increased expenses did not suffice to relieve the debtor from a bad bargain.
And, secondly, the unilateral suspension of the construction had preceded the worsening of economic conditions in
1983; hence, the latter could not reasonably justify the petitioner's plea for release from its statutory and contractual
obligations to its lot buyers, particularly the respondent. Besides, the petitioner had the legal obligation to complete
the amenities within one year from the issuance of the license (under Section 20 of Presidential Decree No. 957), or
within two years from July 15, 1976 (under the express undertaking of the petitioner). Hence, it should have complied
with its obligation by July 15, 1978 at the latest, long before the worsening of the economy in 1983.
2. Respondent as instalment buyer should pay the annual interest but not the penalty
The respondent insists that his unpaid obligation was only the balance of the contract price amounting to
P8,587.80.26 He declines to pay the interest and the penalty on the ground that the petitioner had not constructed the
amenities as promised under the undertaking.
The Court holds that the respondent was liable for the stipulated annual interest of 12% but not the penalty.
Paragraph 2.b, first sentence, of the contract to sell stipulated the 12% annual interest, as follows:
2.) The VENDEE/S hereby agree/s to pay the purchase price of TWENTY SEVEN THOUSAND SEVEN HUNDRED TWENTY
ONLY PESOS (P27,720.00), Philippine Currency, at the office of the VENDOR at Makati, Rizal, without necessity of
demand or the services of a collector in the following manner:ChanRoblesvirtualLawlibrary
a.) As downpayment, the amount of FOUR THOUSAND ONE HUNDRED FIFTY EIGHT ONLY PESOS (P4,158.00) upon
the execution of the contract.
b.) The balance of TWENTY THREE THOUSAND FIVE HUNDRED SIXTY TWO ONLY PESOS (P23,562.00) in eighty
four (84) consecutive monthly installments of FOUR HUNDRED FIFTEEN & 95/100 PESOS (P415.95) each
installment, including interest at the rate of twelve (12%) percent per annum on all outstanding
balances, the first of such monthly installment to be paid on or before the 6 th day of each month,
beginning October, 1976. It is understood that unpaid installments or installments in arrears shall earn a penalty
interest of one (1%) percent per month until fully paid.27 (Bold underscoring supplied for emphasis of the relevant
portion)
Accordingly, the parties agreed to an 84-month or seven-year term of installment on the net contract price of
P23,562.00 at the monthly rate of P415.95, the monthly rate being inclusive of the 12% interest per annum. Such
monthly installment of P415.95 included the principal and the annual interest, the latter being legally termed the
amortization interest. The annual interest was designed to compensate the petitioner for waiting seven years before
receiving the total principal amount. As such, the total cost of the lot purchased by the respondent for the seven-year
term would be P39,097.80, which amount would be inclusive of the contract price of the lot and the amortization
interest.28cralawrednad
In this case, the respondent initially opted to suspend the payment of his amortizations, but then offered to complete
the payment upon realizing that the petitioner did not anymore intend to build the amenities. His payments from
October 6, 1976 to October 6, 1979 corresponded to 36 monthly amortizations totaling P14,974.20, leaving 48
installments unpaid totaling P19,965.60.34cralawrednad
3. Claim of respondent was not barred by laches

The imposition of the annual or amortization interest on the price for the purchase of a lot on installment was valid and
enforceable. As the Court has explained in Relucio v. Brillante-Garfin:29
x x x The contract price of P10,800.00 may thus be seen to be the cash price of the subdivision lots, that is, the
amount payable if the price of the lots were to be paid in cash and in full at the execution of the contract; it is not the
amount that the vendor will have received in the aggregate after fifteen (15) years if the vendee shall have religiously
paid the monthly installments. The installment price, upon the other hand, of the subdivision lots-the sum total of
the monthly installments (i.e., P16,101.00) typically, as in the instant case, has an interest component which
compensates the vendor for waiting fifteen (15) years before receiving the total principal amount of P10,600.00.
Economically or financially, P10,600.00 delivered in full today is simply worth much more than a long series of small
payments totalling, after fifteen (15) years, P10,600.00. For the vendor, upon receiving the full cash price, could
have deposited that amount in a bank, for instance, and earned interest income which at six percent (6%) per year
and for fifteen (15) years, would precisely total P5,501.00 (the difference between the installment price of P16,101.00
and the cash price of P10,600.00) To suppose, as private respondent argues, that mere prompt payment of the
monthly installments as they fell due would obviate application of the interest charge of six percent (6%) per annum,
is to ignore that simple economic fact. That economic fact is, of course, recognized by law, which authorizes the
payment of interest when contractually stipulated for by the parties or when implied in recognized commercial custom
or usage.
Laches is the failure of or neglect for an unreasonable and unexplained length of time to do that which by exercising
due diligence could or should have been done earlier, or to assert a right within a reasonable time. It warrants a
presumption that the party entitled thereto has either abandoned it or declined to assert it. 35cralawrednad
The CA correctly declared that laches did not set in to bar the claim of the respondent because he had made periodic
written demands upon the petitioner that indicated that he had not abandoned or declined to assert the claim. In 1979,
he manifested the intention to avail himself of his right to suspend the payment of his amortizations pursuant to the
undertaking. Since then until 1984, he had continuously requested the petitioner for updates on the progress of the
construction of the amenities so that he could resume his amortizations. The petitioner did not respond to his requests.
His efforts to have the petitioner construct the amenities so that he would already pay for the lot demonstrated his
prudence and alacrity in insisting on his rights, negating any hint of bad faith or of lack of diligence on his part.
WHEREFORE, the Court AFFIRMS the judgment promulgated on May 29, 2003 subject to the MODIFICATIONS, as
follows: (1) the respondent shall pay to the petitioner the amount of P19,965.60; (2) the petitioner shall execute the
deed of absolute sale covering the property, and shall deliver the property to the respondent together with the pertinent
certificate of title in accordance with the terms of their contract; and (3) the petitioner shall pay the costs of suit.

Vendor and vendee are legally free to stipulate for the payment of either the cash price of a subdivision lot or its
installment price. Should the vendee opt to purchase a subdivision lot via the installment payment system, he is in
effect paying interest on the cash price, whether the fact and rate of such interest payment is disclosed in the contract
or not. The contract for the purchase and sale of a piece of land on the installment payment system in the case at
bar is not only quite lawful; it also reflects a very wide spread usage or custom in our present day commercial life. 30

In view of the foregoing, the respondent's insistence on condoning his liability for the contractually-stipulated 12%
annual amortization interest is unwarranted. The condonation will impose a harsh burden upon the petitioner, even as
it will result in the unjust enrichment of the respondent. We cannot ignore that the former has waited for a very long
period of time before it would be able to use the proceeds of the lot sold to the respondent.

The 1% monthly penalty sought to be charged on the arrears for failure to pay the amortizations on time until the
arrears would be fully paid was also stipulated in paragraph 2.b, second sentence, of the contract to sell, supra. But
such stipulation could not be enforced against the respondent because the petitioner waived the penalty should the
subdivision development not be completed by July 15, 1978. The waiver should stand considering that the suspension
of the amortization payment in 1979 was excusable on account of the failure to construct the amenities by July 15,
1978, and considering further that the petitioner did not contest the suspension of payment of the monthly
amortization.31cralawrednad

Under Tamayo v. Huang,32 the buyer has the option to demand the reimbursement of the total amounts paid, or to
await the further development of the subdivision; when the buyer opts for the latter alternative, he may suspend the
payment of his installments until the time when the developer has fulfilled its obligation to him; should the developer
persist in refusing to complete the facilities, the National Housing Authority may take over or cause the development
and completion of the subdivision at the expense of the developer.

57
G.R. No. 116792 March 29, 1996
BANK OF THE PHILIPPINES ISLAND and GRACE ROMERO, petitioners,
vs.
COURT OF APPEALS and EDVIN F. REYES, respondents.
Petitioners seek a review of the Decision1 of respondent Court of Appeals in CA-G.R. CV No. 41543 reversing the
Decision2 of the Regional Trial Court of Quezon City, Branch 79, and ordering petitioners to credit private respondent's
Savings Account No. 3185-0172-56 with P10,556,00 plus interest.
The facts reveal that on September 25, 1985, private respondent Edvin F. Reyes opened Savings Account No. 3185-
0172-56 at petitioner Bank of the Philippine Islands (BPI) Cubao, Shopping Center Branch. It is a joint "AND/OR"
account with his wife, Sonia S. Reyes.
Private respondent also held a joint "AND/OR" Savings Account No. 3185-0128-82 with his grandmother, Emeteria M.
Fernandez, opened on February 11, 1986 at the same BPI branch. He regularly deposited in this account the U.S.
Treasury Warrants payable to the order of Emeteria M. Fernandez as her monthly pension.
Emeteria M. Fernandez died on December 28, 1989 without the knowledge of the U.S. Treasury Department. She was
still sent U.S. Treasury Warrant No. 21667302 dated January 1, 1990 in the amount of U.S. $377.003 or P10,556.00.
On January 4, 1990, private respondent deposited the said U.S. treasury check of Fernandez in Savings Account No.
3185-0128-82. The U.S. Veterans Administration Office in Manila conditionally cleared the check. 4 The check was then
sent to the United States for further clearing.5
Two months after or on March 8, 1990, private respondent closed Savings Account No. 3185-0128-82 and transferred
its funds amounting to P13,112.91 to Savings Account No. 3185-0172-56, the joint account with his wife.
On January 16, 1991, U.S. Treasury Warrant No. 21667302 was dishonored as it was discovered that Fernandez
died three (3) days prior to its issuance. The U.S. Department of Treasury requested petitioner bank for a refund. 6 For
the first time petitioner bank came to know of the death of Fernandez.
On February 19, 1991, private-respondent received a PT&T urgent telegram from petitioner bank requesting him to
contact Manager Grace S. Romero or Assistant Manager Carmen Bernardo. When he called up the bank, he was
informed that the treasury check was the subject of a claim by Citibank NA, correspondent of petitioner bank. He
assured petitioners that he would drop by the bank to look into the matter. He also verbally authorized them to debit
from his other joint account the amount stated in the dishonored U.S. Treasury Warrant. 7 On the same day, petitioner
bank debited the amount of P10,556.00 from private respondent's Savings Account No. 3185-0172-56.
On February 21, 1991, private respondent with his lawyer Humphrey Tumaneng visited the petitioner bank and the
refund documents were shown to them. Surprisingly, private respondent demanded from petitioner bank restitution of
the debited amount. He claimed that because of the debit, he failed to withdraw his money when he needed them. He
then filed a suit for Damages8 against petitioners before the Regional Trial Court of Quezon City, Branch 79.
Petitioners contested the complaint and counter claimed, for moral and exemplary damages. By way of Special and
Affirmative Defense, they averred that private respondent gave them his express verbal authorization to debit the
questioned amount. They claimed that private respondent later refused to execute a written authority. 9
58
In a Decision dated January 20, 1993, the trial court dismissed the complaint of private respondent for lack of cause
of action.10
Private respondent appealed to the respondent Court of Appeals. On August 16, 1994, the Sixteenth Division of
respondent court in AC-G.R. CV No. 41543 reversed the impugned decision, viz:
WHEREFORE, the judgement appealed from is set aside, and another one entered ordering defendant (petitioner) to
credit plaintiff's (private respondent's) S.A. No. 3185-0172-56 with P10,556.00 plus interest at the applicable rates
for express teller savings accounts from February 19, 1991, until compliance herewith. The claim and counterclaim
for damages are dismissed for lack of merit.
Petitioners now contend that respondent Court of Appeals erred:
I. RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT RESPONDENT REYES GAVE EXPRESS
AUTHORITY TO PETITIONER BANK TO DEBIT HIS JOINT ACCOUNT WITH HIS WIFE FOR THE VALUE OF THE
RETURNED U.S. TREASURY WARRANT.
II. RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT PETITIONER BANK HAS LEGAL RIGHT
TO APPLY THE DEPOSIT OF RESPONDENT REYES TO HIS OUTSTANDING OBLIGATION TO PETITIONER BANK
BROUGHT ABOUT BY THE RETURN OF THE U.S. TREASURY WARRANT HE EARLIER DEPOSITED UNDER THE PRINCIPLE
OF "LEGAL COMPENSATION."
III. RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT APPLYING CORRECTLY THE PRINCIPLES ENUNCIATED
BY THE SUPREME COURT IN THE CASE OF GULLAS V. PNB, 62 PHIL. 519.
IV. RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT APPRECIATING THE FACT THAT THE MONEY DEBITED
BY PETITIONER BANK WAS THE SAME MONEY TRANSFERRED BY RESPONDENT REYES FROM HIS JOINT "AND/OR"
ACCOUNT WITH HIS GRANDMOTHER TO HIS JOINT "AND/OR" ACCOUNT WITH HIS WIFE.12
We find merit in the petition.
The first issue for resolution is whether private respondent verbally authorized petitioner bank to debit his joint account
with his wife for the amount of the returned U.S. Treasury Warrant. We find that petitioners were able to prove this
verbal authority by preponderance of evidence. The testimonies of Bernardo and Romero deserve credence. Bernardo
testified:
Q After that, what happened?
A . . . Dr. Reyes Called me up and I informed him about the return of the U.S. Treasury Warrant and we are requested
to reimburse for the amount.
Q What was his response if any?
A Don't you worry about it, there is no personal problem.
Q And so what was his response?
A He said that don' t you worry about.
Q You said that you asked him the advice and he did not answer, what advice are you referring to?
A In our conversation, he promised me that he will give me written confirmation or authorization.13
The conversation was promptly relayed to Romero who testified:
Q . . . Was there any opportunity where in said Mrs. Bernardo was able to convey to you the contents of their
conversation?
A This was immediately relayed to me as manager of the Bank of the Philippine Islands, sir.
Q What, any was the content of her conversation, if you know?
A Mr. Reyes instructed Mrs. Bernardo to debit his account with the bank. His account was maintained jointly with his
wife then he promised to drop by to give us a written confirmation, sir.
Q You said that you authorized the debiting of the account on February 19, 1991, is that correct?
A I did not authorize, we merely followed the instruction of Mr. Reyes, sir.14
We are not disposed to believe private respondent's allegation that he did not give any verbal authorization. His
testimony is uncorroborated. Nor does he inspire credence. His past and fraudulent conduct is an evidence against
him.15 He concealed from petitioner bank the death of Fernandez on December 28, 1989. 16 As of that date, he knew
that Fernandez was no longer entitled to receive any pension. Nonetheless, he-still received the U.S. Treasury Warrant
of Fernandez, and on January 4, 1990 deposited the same in Savings Account No. 3185-0128-82. To pre-empt a
refund, private respondent closed his joint account with Fernandez (Savings Account No. 31-85-0128-82) on March
8, 1990 and transferred its balance to his joint account with his wife (Savings Account No. 3185-0172-56). Worse,
private respondent declared under the penalties of perjury in the withdrawal slip 17 dated March 8, 1990 that his co-
depositor, Fernandez, is still living. By his acts, private respondent has stripped himself of credibility.
More importantly, the respondent court erred when it failed to rule that legal compensation is
proper. Compensation shall take place when two persons, in their own right, are creditors and debtors of each
other.18 Article 1290 of the Civil Code provides that "when all the requisites mentioned in Article 1279 are
present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even
though the creditors and debtors are not aware of the compensation." Legal compensation operates even against the
will of the interested parties and even without the consent of them. 19 Since this compensation takes place ipso jure,
its effects arise on the very day on which all its requisites concur. 20 When used as a defense, it retroacts to the date
when its requisites are fulfilled.21
Article 1279 states that in order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the
other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and
also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated
in due time to the debtor.
The elements of legal compensation are all present in the case at bar. The obligors bound principally are at the same
time creditors of each other. Petitioner bank stands as a debtor of the private respondent, a depositor. At the same
time, said bank is the creditor of the private respondent with respect to the dishonored U.S. Treasury Warrant which
the latter illegally transferred to his joint account. The debts involved consist of a sum of money. They are due,
liquidated, and demandable. They are not claimed by a third person.
It is true that the joint account of private respondent and his wife was debited in the case at bar. We hold that the
presence of private respondent's wife does not negate the element of mutuality of parties, i.e., that they must be
creditors and debtors of each other in their own right. The wife of private respondent is not a party in the case at bar.
She never asserted any right to the debited U.S. Treasury Warrant. Indeed, the right of the petitioner bank to make
the debit is clear and cannot be doubted. To frustrate the application of legal compensation on the ground that the
parties are not all mutually obligated would result in unjust enrichment on the part of the private respondent and his
wife who herself out of honesty has not objected to the debit. The rule as to mutuality is strictly applied at law. But not
in equity, where to allow the same would defeat a clear right or permit irremediable injustice.22
In VIEW HEREOF, the Decision of respondent Court of Appeals in CA-G.R. CV No. 41543 dated August 16, 1994 is
ANNULLED and SET ASIDE and the Decision of the trial court in Civil Case No. Q-91-8451 dated January 20, 1993 is
REINSTATED. Costs against private respondent.
59
G.R. No. 174882 : January 21, 2013
MONDRAGON PERSONAL SALES, INC., Petitioner, v. VICTORIANO S. SOLA, JR., Respondent.
Before us is a petition for review on certiorari seeking to set aside the Decision1 dated February 10, 2006 and the
Resolution2 dated September 6, 2006 issued by the Court of Appeals (CA) in CA-G.R. CV No. 71690.
Petitioner Mondragon Personal Sales Inc., a company engaged in the business of selling various consumer products
through a network of sales representatives, entered into a Contract of Services3 with respondent Victoriano S. Sola,
Jr. for a period of three years commencing on October 2, 1994 up to October 1, 1997. Under the said contract,
respondent, as service contractor, would provide service facilities, i.e., bodega cum office, to petitioner's products,
sales force and customers in General Santos City and as such, he was entitled to commission or service fee as
follows:cralawlibrary
MONTHLY SALES
(net of vat) SERVICE FEE
P50,000.00 to 2,500,000.00 Five percent (5%)
P2,500,001.00 to 3,000.000.00 P125,000.00
P3,000,001.00 to 3,500,000.00 150,000.00
P3,500,001.00 UP 200,000.004
The agreement then came into effect when petitioner's goods were delivered to respondent's bodega and were sold by
petitioner's employees. Prior to the execution of the contract, however, respondents wife, Lina Sola, had an existing
obligation with petitioner arising from her Franchise Distributorship Agreement with the latter. On January 26, 1995,
respondent wrote a letter5 addressed to Renato G. de Leon, petitioner's Vice-President for Finance, wherein he
acknowledged and confirmed his wifes indebtedness to petitioner in the amount of P1,973,154.73 (the other
accountability in the sum of P1,490,091.15 was still subject to reconciliation) and, together with his wife, bound himself
to pay on installment basis the said debt. Consequently, petitioner withheld the payment of respondent's service fees
from February to April 1995 and applied the same as partial payments to the debt which he obligated to pay. On April
29, 1995, respondent closed and suspended operation of his office cum bodega where petitioner's products were stored
and customers were being dealt with.
On May 24, 1995, respondent filed with the Regional Trial Court (RTC) of Davao, a Complaint6 for accounting and
rescission against petitioner alleging that petitioner withheld portions of his service fees covering the months from
October 1994 to January 1995 and his whole service fees for the succeeding months of February to April 1995, the
total amount of which was P222,202.84; that petitioner's act grossly hampered, if not paralyzed, his business operation,
thus left with no other recourse, he suspended operations to minimize losses. He prayed for the rescission of the
contract of services and for petitioner to render an accounting of his service fees.
In its Answer with Counterclaim7 filed on June 14, 1995, petitioner contended that respondents letter dated January
26, 1995 addressed to petitioner's Vice-President for Finance, confirmed and obligated himself to pay on installment
basis the accountability of his wife with petitioner, thus respondent's service fees/commission earned for the period of
February to April 1995 amounting to P125,040.01 was applied by way of compensation to the amounts owing to it;
that all the service fees earned by respondent prior to February 1995 were fully paid to him. By way of counterclaim,
petitioner asked for the payment of the amount of P1,547,892.55 which respondent obligated to pay plus interest; the
delivery of petitioner's products padlocked in respondent's office cum bodega, the payment for the loss of income in
the amount of P833,600.00 as well as the remaining balance of P45,728.30 from the P100,000.00 given by petitioner
to respondent as advance money for the purchase of office equipment and the renovation of the bodega cum office.
In his Reply and Answer8 to petitioner's counterclaim, respondent averred that he was made to believe that the sales
commission contained in petitioner's memorandum dated July 5, 1994 would be applicable to him; that it was improper
for petitioner to confuse respondent's transaction with that of his wife as it was divergent in nature and terms.
Pending trial, petitioner moved for the issuance of a preliminary attachment and replevin which the RTC granted in its
Order dated June 19, 1995 upon the filing of bonds.9 Respondent filed a Motion to Quash the Writ of Attachment, which
the RTC denied in an Order dated July 24, 1995.10 As respondent's motion for reconsideration was also denied, he
filed with us a petition for certiorari, docketed as G.R. No. 126427, assailing the RTC orders which we dismissed in a
Resolution11 dated November 11, 1996 on procedural matters.
Trial thereafter ensued.
On July 6, 2000, the RTC rendered its Decision,12 the dispositive portion of which reads:cralawlibrary
FOR THE FOREGOING, judgment is hereby rendered in favor of defendant and against plaintiff, ordering the latter to
pay the former:cralawlibrary
1) the sum of P1,543,643.96 representing the principal balance of plaintiff's account with defendant, plus legal
interest from the time of filing of the complaint until fully paid, at the rate of 6% per annum;
2) attorney's fees in the amount of P25,000.00
3) costs of the suit.
In so ruling, the RTC found that in computing the service fees/commissions due respondent, the rate as provided in
the contract of service dated January 27, 1995 was controlling, since respondent was a party thereto duly affixing his
signature therein; that petitioner's computation of respondent's service fees for the months of February to April 1995
in the total amount of P125,040.01 which was based on the said contract deserved credence. The RTC ruled that while
Article 1381 of the Civil Code provides for the grounds for which a contract may be rescinded, none of these grounds
existed in this case; that there was no showing of fraud which petitioner employed when it entered into the contract
with respondent nor did respondent agree to such a contract without knowing its content, thus the contract was not
rescissible.
As regards to petitioner's counterclaim that respondent confirmed and assumed the payment of his wife's account with
petitioner, the RTC found that respondent obligated himself to pay his wife's account as evidenced by his letter dated
January 26, 1995; that after deducting from the confirmed amount of P1,668,683.97 the respondent's service
commission for the period from February 1995 to April 1995, which was in the total amount of P125,040.01, the amount
owing to petitioner would still be P1,543,643.96. The RTC dismissed the other counterclaims, since they were not
substantiated but found petitioner entitled to attorney's fees due to the amount of money involved and the time spent
in pursuing the case.
Respondent filed his appeal to the CA to which petitioner filed its appellee's brief. On February 10, 2006, the CA
rendered its assailed decision, the dispositive portion of which reads as follows:cralawlibrary
WHEREFORE, in the light of the foregoing premises, herein appeal is GRANTED. Accordingly, the Contract of Services
is hereby RESCINDED. Let the case be REMANDED to the court a quo for the proper determination of the amount of
service fees unlawfully withheld from the appellant.
Furthermore, Appellee is hereby ordered to pay the Appellant attorneys fees in the amount of twenty-five thousand
pesos (P25,000.00).14?r?l1
The CA found that under Article 1191 of the Civil Code, respondent was entitled to rescind the contract of services as
it was petitioner who breached the same by withholding the service fees lawfully due to the former; that petitioner's
act of unlawfully withholding the service fees due respondent constituted a willful and deliberate infringement on
60
contractual obligations which would justify rescission under Article 1191. The CA declared that the contract of services
entered into by the parties did not fall under any of the rescissible contracts enumerated under Article 1381 of the Civil
Code but under Article 1191 which pertains to rescission of reciprocal obligations as in the instant case.
The CA ruled that respondent did not assume his wife's obligation as he did not substitute himself in the shoes of his
wife regarding the payment of the latter's liability; that there can be no novation as novation was never presumed.
Petitioner's act of withholding respondent's service fee and thereafter applying them to the obligation of his wife was
unlawful, considering that respondent never assumed his wife's obligation with petitioner; that there could be no legal
compensation, since it was respondent's wife who was principally indebted to petitioner owing from the franchise
distributorship agreement she earlier entered into with petitioner; that granting the debt redounded to the benefit of
the family and incurred with the consent of respondent, and the spouse, as joint administrators of the community
property are solidarily liable with their separate properties for debts incurred, however, such liability is only subsidiary,
when the community property is not sufficient to pay for all liabilities, however, in this case, there was no showing that
the community property of the spouses was insufficient to pay the debt.
The CA ordered the deletion of attorney's fees as it was respondent who was entitled to such award, since he was
compelled to litigate to protect his interest for the unjustified act of petitioner.
Petitioner's motion for reconsideration was denied in a Resolution dated September 6, 2006.
Hence, this petition where petitioner alleges that the CA erred:cralawlibrary
1. In finding that petitioner breached its contract with respondent and that there is no compensation in accordance
to Article 1279 of the Civil Code;
2. In finding that respondent did not assume the obligation of his wife;
3. In remanding the case to the court a quo for proper determination of service fee withheld when the same has been
determined;
4. In obliterating the award of petitioner's counterclaim when respondent admitted his obligation to petitioner.
The CA found that petitioner's act of withholding respondent's service fees and thereafter applying them as partial
payment to the obligation of respondent's wife with petitioner was unlawful, considering that respondent never assumed
his wifes obligation, thus, there can be no legal compensation under Article 1279 of the Civil Code.
We do not agree.
In his letter dated January 26, 1995 addressed to Mr. Renato G. De Leon, petitioner's Vice-President for Finance,
respondent wrote, and which we quote in full:
Gentlemen:
This refers to the account of my wife, Lina (Beng) Sola, with Mondragon Personal Sales, Inc. in the amount of
P3,463,173.88. Of this total amount, we are initially confirming the total amount of P1,973,154.73 as due from Lina
(Beng) Sola, while the remaining balance of P1,490,091.15 will be subject to a reconciliation on or before February
5, 1995.
In recognition of Lina (Beng) Sola's account, we undertake to pay P100,000.00 on or before February 01, 1995 and
the balance of P1,873,154.73 plus interest of 18% per annum and 2% administrative charge per month on the
diminishing balance will be covered by postdated checks of not less than P100,000.00 per month starting February
28, 1995 and every end of the month thereafter but not to exceed eighteen (18) months or July 31, 1996.
 With regards to the remaining balance of P1,490,019.15, we agree that upon final verification of these accounts, we
will issue additional postdated checks subject to the same terms and conditions as stated above.
We further agree that all subsequent orders that will be released to us will be covered by postdated checks.
I fully understand and voluntarily agree to the above undertaking with full knowledge of the consequences which
may arise therefrom.
Very truly yours,
(signed)
Victoriano S. Sola16?r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ
amount where petitioner owes respondent P125,040.01 for service fees, while respondent owes petitioner
P1,973,154.73.
As legal compensation took place in this case, there is no basis for respondent to ask for rescission since he was the
first to breach their contract when, on April 29, 1995, he suddenly closed and padlocked his bodega cum office in
General Santos City occupied by petitioner.
Petitioner claims that the CA erred in obliterating the RTCs award of its counterclaim which it had alleged and proved
during trial and which respondent even admitted.

A reading of the letter shows that respondent becomes a co-debtor of his wife's accountabilities with petitioner. Notably,
the last paragraph of his letter which states "I fully understand and voluntarily agree to the above undertaking with
full knowledge of the consequences which may arise therefrom" and which was signed by respondent alone, shows
that he solidarily bound himself to pay such debt. Based on the letter, respondent's wife had an account with petitioner
in the amount of P3,463,173.88, out of which only the amount of P1,973,154.73 was confirmed while the remaining
amount of P1,490,019.15 would still be subject to reconciliation. As respondent bound himself to pay the amount of
P1,973,154.73, he becomes petitioner's principal debtor to such amount.
On the other hand, respondent, as petitioner's service contractor, was entitled to a payment of service fees as provided
in their contract of services dated January 26, 1995. We note that respondent never refuted the amount of monthly
sales recorded but only assailed in the RTC the rate of the service fees which he was entitled to. However, we find that
there could be no other computation of the rate of the service fees other than what was provided in the contract of
services dated January 26, 1995 signed by respondent and petitioner. Thus, we give credence to petitioner's
computation of respondent's service fees for the months of February to April 1995 in the total amount of P125,040.01.
Since respondent promised petitioner in his letter dated January 26, 1995, to monthly pay a certain amount to cover
the indebtedness to petitioner which he failed to do, the latter withheld the payment of respondent's service fees and
applied the same as partial payments of the debt by way of compensation.
We agree.
In his letter dated January 6, 1995, respondent confirmed the amount of P1,973,154.73 owing to petitioner. On
September 29, 1997, petitioner wrote another letter20 to petitioner's Credit and Collection Manager, Rudy Machanco,
wherein he again confirmed the indebtedness in the amount of P1,973,154.73. In the same letter, he showed the
payments he had already made and after deducting the same from the confirmed indebtedness, the total balance
remained to be at P1,668,683.97. As we have said earlier, respondent's service fees from February to April 1995 which
was in the total amount of P125,040.01 was not assailed at all by respondent in his appeal with the CA, thus he is
bound by such computation. Hence, the amount of P125,040.01 which petitioner owes respondent shall be offset
against the P1,973,154.73 which respondent owes petitioner, and therefore leaving a balance of P1,543,643.96 which
respondent must pay.
WHEREFORE, the petition for review is GRANTED. The Decision dated February 10, 2006 and the Resolution dated
September 6, 2006 of the Court of Appeals are hereby REVERSED and SET ASIDE. Respondent is hereby ordered to
pay petitioner the amount of P1,543,643.96 with 6% percent per annum from June 14, 1995 until finality of this
Decision and 12% percent per annum thereafter until full payment.

We find that petitioner's act of withholding respondent's service fees/commissions and applying them to the latter's
outstanding obligation with the former is merely an acknowledgment of the legal compensation that occurred by
operation of law between the parties.17 Compensation is a mode of extinguishing to the concurrent amount the
obligations of persons who in their own right and as principals are reciprocally debtors and creditors of each other.
Legal compensation takes place by operation of law when all the requisites are present, as opposed to conventional
compensation which takes place when the parties agree to compensate their mutual obligations even in the absence
of some requisites.18 Legal compensation requires the concurrence of the following conditions:cralawlibrary
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the
other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and
also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated
in due time to the debtor.

We find the presence of all the requisites for legal compensation. Petitioner and respondent are both principal obligors
and creditors of each other. Their debts to each other consist in a sum of money. Respondent acknowledged and bound
himself to pay petitioner the amount of P1,973,154.73 which was already due, while the service fees owing to
respondent by petitioner become due every month. Respondent's debt is liquidated and demandable, and petitioner's
payments of service fees are liquidated and demandable every month as they fall due. Finally, there is no retention or
controversy commenced by third persons over either of the debts. Thus, compensation is proper up to the concurrent

61
G.R. No. 115158 September 5, 1997
EMILLA M. URACA, CONCORDIA D. CHING and ONG SENG, represented by ENEDINO H. FERRER, petitioners,
vs.
COURT OF APPEALS, JACINTO VELEZ, JR., CARMEN VELEZ TING, AVENUE MERCHANDISING, INC., FELIX
TING AND ALFREDO GO, respondents.
Novation is never presumed; it must be sufficiently established that a valid new agreement or obligation has
extinguished or changed an existing one. The registration of a later sale must be done in good faith to entitle the
registrant to priority in ownership over the vendee in an earlier sale.
Statement of the Case
These doctrines are stressed by this Court as it resolves the instant petition challenging the December 28, 1993
Decision1 of Respondent Court of Appeals2 in CA-G.R. SP No. 33307, which reversed and set aside the judgment of the
Regional Trial Court of Cebu City, Branch 19, and entered a new one dismissing the petitioners' complaint. The
dispositive portion of the RTC decision reads:3
WHEREFORE, judgment is hereby rendered:
1) declaring as null and void the three (3) deeds of sale executed by the Velezes to Felix C. Ting, Manuel Ting and
Alfredo Go;
2) ordering Carmen Velez Ting and Jacinto M. Velez, Jr. to execute a deed of absolute sale in favor of Concordia D.
Ching and Emilia M. Uraca for the properties in question for P1,400,000.00, which sum must be delivered by the
plaintiffs to the Velezes immediately after the execution of said contract;
3) ordering Carmen Velez Ting and Jacinto M. Velez, Jr. to reimburse Felix C. Ting, Manuel C. Ting and Alfredo Go
whatever amount the latter had paid to the former;
4) ordering Felix C. Ting, Manuel C. Ting and Alfredo Go to deliver the properties in question to the plaintiffs within
fifteen (15) days from receipt of a copy of this decision;
5) ordering all the defendants to pay, jointly and severally, the plaintiffs the sum of P20,000.00 as attorney's fees.
The Antecedent Facts
The facts narrated by the Court of Appeals are as follows:4
The Velezes (herein private respondents) were the owners of the lot and commercial building in question located at
Progreso and M.C. Briones Streets in Cebu City.
Herein (petitioners) were the lessees of said commercial building. 5
On July 8, 1985, the Velezes through Carmen Velez Ting wrote a letter to herein (petitioners) offering to sell the subject
property for P1,050,000.00 and at the same time requesting (herein petitioners) to reply in three days.
On July 10, 1985, (herein petitioners) through Atty. Escolastico Daitol sent a reply-letter to the Velezes accepting the
aforesaid offer to sell.
On July 11, 1985, (herein petitioner) Emilia Uraca went to see Carmen Ting about the offer to sell but she was told by
the latter that the price was P1,400,000.00 in cash or manager's check and not P1,050,000.00 as erroneously stated
in their letter-offer after some haggling. Emilia Uraca agreed to the price of P1,400,000.00 but counter-proposed that
62
payment be paid in installments with a down payment of P1,000,000.00 and the balance of P400,000 to be paid in 30
days. Carmen Velez Ting did not accept the said counter-offer of Emilia Uraca although this fact is disputed by Uraca.
No payment was made by (herein petitioners) to the Velezes on July 12, 1985 and July 13, 1985.
On July 13, 1985, the Velezes sold the subject lot and commercial building to the Avenue Group (Private Respondent
Avenue Merchandising Inc.) for P1,050,000.00 net of taxes, registration fees, and expenses of the sale.
At the time the Avenue Group purchased subject property on July 13, 1985 from the Velezes, the certificate of title of
the said property was clean and free of any annotation of adverse claims or lis pendens.
On July 31, 1985 as aforestated, herein (petitioners) filed the instant complaint against the Velezes.
On August 1, 1985, (herein petitioners) registered a notice of lis pendens over the property in question with the Office
of the Register of Deeds.6
On October 30, 1985, the Avenue Group filed an ejectment case against (herein petitioners) ordering the latter to
vacate the commercial building standing on the lot in question.
Thereafter, herein (petitioners) filed an amended complaint impleading the Avenue Group as new defendants (after
about 4 years after the filing of the original complaint).
The trial court found two perfected contracts of sale between the Velezes and the petitioners involving the real property
in question. The first sale was for P1,050,000.00 and the second was for P1,400,000.00. In respect to the first sale,
the trial court held that "[d]ue to the unqualified acceptance by the plaintiffs within the period set by the Velezes, there
consequently came about a meeting of the minds of the parties not only as to the object certain but also as to the
definite consideration or cause of the contract."7 And even assuming arguendo that the second sale was not perfected,
the trial court ruled that the same still constituted a mere modificatory novation which did not extinguish the first sale.
Hence, the trial court held that "the Velezes were not free to sell the properties to the Avenue Group." 8 It also found
that the Avenue Group purchased the property in bad faith.9
Private respondents appealed to the Court of Appeals. As noted earlier, the CA found the appeal meritorious. Like the
trial court, the public respondent held that there was a perfected contract of sale of the property for P1,050,000.00
between the Velezes and herein petitioners. It added, however, that such perfected contract of sale was subsequently
novated. Thus, it ruled: "Evidence shows that that was the original contract. However, the same was mutually
withdrawn, cancelled and rescinded by novation, and was therefore abandoned by the parties when Carmen Velez Ting
raised the consideration of the contract [by] P350,000.00, thus making the price P1,400,000.00 instead of the original
price of P1,050,000.00. Since there was no agreement as to the 'second' price offered, there was likewise no meeting
of minds between the parties, hence, no contract of sale was perfected." 10 The Court of Appeals added that, assuming
there was agreement as to the price and a second contract was perfected, the later contract would be unenforceable
under the Statute of Frauds. It further held that such second agreement, if there was one, constituted a mere promise
to sell which was not binding for lack of acceptance or a separate consideration. 11
The Issues
Petitioners allege the following "errors" in the Decision of Respondent Court:
I. Since it ruled in its decision that there was no meeting of the minds on the "second" price offered (P1,400,000.00),
hence no contract of sale was perfected, the Court of Appeals erred in not holding that the original written contract
 to buy and sell for P1,050,000.00 the Velezes property continued to be valid and enforceable pursuant to Art. 1279
in relation with Art. 1479, first paragraph, and Art. 1403, subparagraph 2 (e) of the Civil Code.
II. The Court of Appeals erred in not ruling that petitioners have better rights to buy and own the Velezes' property
for registering their notice of lis pendens ahead of the Avenue Group's registration of their deeds of sale taking into
account Art. 1544, 2nd paragraph, of the Civil Code. 12
The Court's Ruling
The petition is meritorious.
First Issue: No Extinctive Novation
The lynchpin of the assailed Decision is the public respondent's conclusion that the sale of the real property in
controversy, by the Velezes to petitioners for P1,050,000.00, was extinguished by novation after the said parties
negotiated to increase the price to P1,400,000.00. Since there was no agreement on the sale at the increased price,
then there was no perfected contract to enforce. We disagree.
The Court notes that the petitioners accepted in writing and without qualification the Velezes' written offer to sell at
P1,050,000.00 within the three-day period stipulated therein. Hence, from the moment of acceptance on July 10, 1985,
a contract of sale was perfected since undisputedly the contractual elements of consent, object certain and cause
concurred. 13 Thus, this question is posed for our resolution: Was there a novation of this perfected contract?
Article 1600 of the Civil Code provides that "(s)ales are extinguished by the same causes as all other obligations, . . .
." Article 1231 of the same Code states that novation is one of the ways to wipe out an obligation. Extinctive novation
requires: (1) the existence of a previous valid obligation; (2) the agreement of all the parties to the new contract; (3)
the extinguishment of the old obligation or contract; and (4) the validity of the new one. 14 The foregoing clearly show
that novation is effected only when a new contract has extinguished an earlier contract between the same parties. In
this light, novation is never presumed; it must be proven as a fact either by express stipulation of the parties or by
implication derived from an irreconcilable incompatibility between old and new obligations or contracts. 15 After a
thorough review of the records, we find this element lacking in the case at bar.
As aptly found by the Court of Appeals, the petitioners and the Velezes did not reach an agreement on the new price
of P1,400,000.00 demanded by the latter. In this case, the petitioners and the Velezes clearly did not perfect a new
contract because the essential requisite of consent was absent, the parties having failed to agree on the terms of the
payment. True, petitioners made a qualified acceptance of this offer by proposing that the payment of this higher sale
price be made by installment, with P1,000,000.00 as down payment and the balance of P400,000.00 payable thirty
days thereafter. Under Article 1319 of the Civil Code, 16 such qualified acceptance constitutes a counter-offer and has
the ineludible effect of rejecting the Velezes' offer. 17 Indeed, petitioners' counter-offer was not accepted by the
Velezes. It is well-settled that "(a)n offer must be clear and definite, while an acceptance must be unconditional and
unbounded, in order that their concurrence can give rise to a perfected contract." 18 In line with this basic postulate of
contract law, "a definite agreement on the manner of payment of the price is an essential element in the formation of
a binding and enforceable contract of sale." 19 Since the parties failed to enter into a new contract that could have
extinguished their previously perfected contract of sale, there can be no novation of the latter. Consequently, the first
sale of the property in controversy, by the Velezes to petitioners for P1,050,000.00, remained valid and existing.
In view of the validity and subsistence of their original contract of sale as previously discussed, it is unnecessary to
discuss public respondent's theses that the second agreement is unenforceable under the Statute of Frauds and that
the agreement constitutes a mere promise to sell.
63
Second Issue: Double Sale of an Immovable
The foregoing holding would have been simple and straightforward. But Respondent Velezes complicated the matter
by selling the same property to the other private respondents who were referred to in the assailed Decision as the
Avenue Group.
Before us therefore is a classic case of a double sale — first, to the petitioner; second, to the Avenue Group. Thus, the
Court is now called upon to determine which of the two groups of buyers has a better right to said property.
Article 1544 of the Civil Code provides the statutory solution:
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded
it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession;
and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.
Under the foregoing, the prior registration of the disputed property by the second buyer does not by itself confer
ownership or a better right over the property. Article 1544 requires that such registration must be coupled with good
faith. Jurisprudence teaches us that "(t)he governing principle is primus tempore, potior jure (first in time, stronger in
right). Knowledge gained by the first buyer of the second sale cannot defeat the first buyer's rights except where the
second buyer registers in good faith the second sale ahead of the first, as provided by the Civil Code. Such knowledge
of the first buyer does not bar her from availing of her rights under the law, among them, to register first her purchase
as against the second buyer. But in converso, knowledge gained by the second buyer of the first sale defeats his rights
even if he is first to register the second sale, since such knowledge taints his prior registration with bad faith. This is
the price exacted by Article 1544 of the Civil Code for the second buyer being able to displace the first buyer; that
before the second buyer can obtain priority over the first, he must show that he acted in good faith throughout (i.e, in
ignorance of the first sale and of the first buyer's rights) — from the time of acquisition until the title is transferred to
him by registration or failing registration, by delivery of possession." 20 (Emphasis supplied)
After a thorough scrutiny of the records of the instant case, the Court finds that bad faith tainted the Avenue Group's
purchase on July 13, 1985 of the Velezes' real property subject of this case, and the subsequent registration thereof
on August 1, 1995. The Avenue Group had actual knowledge of the Velezes' prior sale of the same property to the
petitioners, a fact antithetical to good faith. For a second buyer like the Avenue Group to successfully invoke the second
paragraph, Article 1544 of the Civil Code, it must possess good faith from the time of the sale in its favor until the
registration of the same. This requirement of good faith the Avenue Group sorely failed to meet. That it had knowledge
of the prior sale, a fact undisputed by the Court of Appeals, is explained by the trial court thus:
The Avenue Group, whose store is close to the properties in question, had known the plaintiffs to be the lessee-
occupants thereof for quite a time. Felix Ting admitted to have a talk with Ong Seng in 1983 or 1984 about the
properties. In the cross-examination, Manuel Ting also admitted that about a month after Ester Borromeo allegedly
offered the sale of the properties Felix Ting went to see Ong Seng again. If these were so, it can be safely assumed
that Ong Seng had consequently told Felix about plaintiffs' offer on January 11, 1985 to buy the properties for
P1,000,000.00 and of their timely acceptance on July 10, 1985 to buy the same at P1,050,000.00.
The two aforesaid admissions by the Tings, considered together with Uraca's positive assertion that Felix Ting met
with her on July 11th and who was told by her that the plaintiffs had transmitted already to the Velezes their decision
to buy the properties at P1,050,000.00, clinches the proof that the Avenue Group had prior knowledge of plaintiffs'
interest. Hence, the Avenue Group defendants, earlier forewarned of the plaintiffs' prior contract with the Velezes,
were guilty of bad faith when they proceeded to buy the properties to the prejudice of the plaintiffs. 21
The testimony of Petitioner Emilia Uraca supports this finding of the trial court. The salient portions of her testimony
follow:
BY ATTY. BORROMEO: (To witness)
Q According to Manuel Ting in his testimony, even if they know, referring to the Avenue Group, that you were tenants
of the property in question and they were neighbors to you, he did not inquire from you whether you were interested
in buying the property, what can you say about that?
A It was Felix Ting who approached me and asked whether I will buy the property, both the house and the land and
that was on July 10, 1985.
ATTY BORROMEO: (To witness)
Q What was your reply, if any?
A Yes, sir, I said we are going to buy this property because we have stayed for a long time there already and we
have a letter from Carmen Ting asking us whether we are going to buy the property and we have already given our
answer that we are willing to buy.
COURT: (To witness)
Q What do you mean by that, you mean you told Felix Ting and you showed him that letter of Carmen Ting?
WITNESS:
A We have a letter of Carmen Ting where she offered to us for sale the house and lot and I told him that I have
already agreed with Concordia Ching, Ong Seng and my self that we buy the land. We want to buy the land and the
building. 22
We see no reason to disturb the factual finding of the trial court that the Avenue Group, prior to the registration of the
property in the Registry of Property, already knew of the first sale to petitioners. It is hornbook doctrine that "findings
of facts of the trial court, particularly when affirmed by the Court of Appeals, are binding upon this Court" 23 save for
exceptional
circumstances 24 which we do not find in the factual milieu of the present case. True, this doctrine does not apply where
there is a variance in the factual findings of the trial court and the Court of Appeals. In the present case, the Court of
Appeals did not explicitly sustain this particular holding of the trial court, but neither did it controvert the same.
Therefore, because the registration by the Avenue Group was in bad faith, it amounted to no "inscription" at all. Hence,
the third and not the second paragraph of Article 1544 should be applied to this case. Under this provision, petitioners
are entitled to the ownership of the property because they were first in actual possession, having been the property's
lessees and possessors for decades prior to the sale.
Having already ruled that petitioners' actual knowledge of the first sale tainted their registration, we find no more
reason to pass upon the issue of whether the annotation of lis pendens automatically negated good faith in such
registration.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is hereby SET ASIDE and the
dispositive portion of the trial court's decision dated October 19, 1990 is REVIVED with the following MODIFICATION
— the consideration to be paid under par. 2 of the disposition is P1,050,000.00 and not P1,400,000.00. No Costs.
64
[ G.R. No. 221147. September 29, 2021 ]
ASIAN CONSTRUCTION AND DEVELOPMENT CORPORATION, PETITIONER, VS. MERO STRUCTURES, INC.,
SUBSTITUTED BY NOVUM STRUCTURES LLC, INC., FIRST CENTENNIAL CLARK CORP., AND NATIONAL
DEVELOPMENT COMPANY, RESPONDENTS.
This Petition for Review on Certiorari1 seeks to set aside the February 18, 2015 Decision2 and October 21, 2015
Resolution3 of the Court of Appeals (CA/appellate court) in CA-G.R. CV No. 98844.
The facts of the case are as follows:
In line with the 100th anniversary celebration of the Philippine independence from Spanish colonial rule in
1998,4 First Centennial Clark Corporation.(FCCC) was created for the purpose of designing, constructing, operating,
and managing the Philippines' National Centennial Exposition to be held in the Clark Special Economic Zone (CSEZ)
located in Clark Field, Pampanga.5
On March 16, 1998, FCCC entered into a Construction Agreement6 with petitioner Asian Construction and
Development Corporation (Asiakonstrukt) for the finalization of the architectural concept, design, and storyline
approved by the National Centennial Commission and to undertake all the necessary construction works for the
Exposition Theme Park.7 On even date, respondent MERO Structures, Inc. (MERO), an American corporation, submitted
a Materials Only Proposal8 to Asiakonstrukt for the supply of materials in constructing a special Philippine flag structure
in the Expo Filipino, the grand opening of which is on July 19, 1998. The proposal provides, among others, that: (a)
MERO would manufacture and supply the MERO KK System Spaceframe (spaceframe) for the flag structure for
US$570,000.00; (b) 20% of the contract price would be paid upon award of the supply contract and the remainder
payable via letter of credit; and (c) the materials would be shipped on April 4, 1998 if the transaction were confirmed
by March 18, 1998.9 On March 17, 1998, Asiakonstrukt accepted the Materials Only Proposal.10
In a bill of lading dated April 5, 1998,11 MERO shipped the spaceframe to "Philippine Centennial Exposition c/o
Asiakonstrukt."12
On June 16, 1998, Asiakonstrukt submitted to FCCC a proposal13 for the design, supply, and installation of the
flag structure using MERO's spaceframe subject to the following terms and conditions: (a) full payment of the imported
MERO spaceframe structures upon its delivery on-site; (b) 50% payment of installation and lighting of spaceframe
structures upon receipt of the notice to proceed while the remaining 50% shall be paid on progress billing; and (c)
completion of the project on June 28, 1998.14 On the same day, the FCCC held a board meeting and approved
Asiakonstrukt's proposal, subject to the applicable rules and regulations of the Commission on Audit, the
reimbursement of the costs out of the sponsorships, and the submission of a certificate from MERO that Asiakonsrukt
is the only certified installer of spaceframe structures in the Philippines.15 Also, in a Memorandum16 for the Board of
Directors, the President of FCCC, Mr. Benjie L. Lopez, requested board approval to secure advances from respondent
National Development Corporation (NDC) to finance the design, supply, and installation of the flag structure.17 NDC
would in turn source the advances from a loan provided by certain government financial institutions to FCCC.18
In a letter19 dated June 17, 1998, FCCC approved Asiakonstrukt's proposal, subject to the pricing, terms, and
conditions in the latter's proposal dated June 16, 1998, and in accordance with MERO's Materials Only Proposal dated
March 16, 1998.20
 On June 18, 1998, Asiakonstrukt informed MERO that FCCC awarded to Asiakonstrukt the contract for the design
supply, and installation of the flag structure and the latter would pay MERO after FCCC's payment of the materials not
later than June 26, 1998.21
On August 10, 1998, Asiakonstrukt requested from FCCC the full payment for the spaceframe, which had been
delivered to the intended site, and the 50% downpayment for its installation and lighting, both due since June 17,
1998.22
In a series of letters dated as early as March 19, 1998, MERO sought payment of the spaceframe from
Asiakonstrukt.23
In a letter24 to Asiakonstrukt dated October 13, 1999, MERO requested that it be paid directly by the FCCC and
that Asiakonstrukt notify FCCC that the work is complete and satisfactory and that full payment should be made.25 By
way of a response, Asiakonstrukt, in a letter26 dated November 8, 1999, stated that it interposed no objection to
MERO's request to collect payment directly from the FCCC.
In another series of letters,27 MERO attempted to seek assistance from the Department of Trade and Industry
(DTI) and Department of Finance (DOF). However, these attempts proved futile.
In a letter28 dated May 3, 2000, the newly appointed FCCC President at the time, Mr. Manuel R. Pamaran, wrote
to MERO that he was not yet acquainted with the previous transactions of FCCC but noted that he had yet to see a
contract between FCCC and MERO.29 In the same letter,30 he also requested a conference with MERO's representative
on May 12, 2000. The meeting eventually happened on May 22, 2000, but yielded nothing for MERO in terms of the
payment demanded.31
In a letter32 dated September 21, 2000, MERO, through counsel, made a final demand on Asiakonstrukt for its
US$570,000.00 principal obligation plus 1.5% interest per month or 18% annually.
Despite this, Asiakonstrukt still failed to pay, prompting MERO to institute before the Regional Trial Court (RTC)
a Complaint33 for sum of money on February 21, 2002. NIERO prayed that Asiakonstrukt or FCCC be ordered to pay
US$1,033,990.00 including interest, plus litigation expenses, and moral and exemplary damages, and NDC be directed
to furnish FCCC with advances for this purpose.34
In its Answer with Counterclaim,35 NDC challenged MERO's personality to sue in the Philippines as well as the
validity of the complaint's verification and certification against forum shopping.36 It argued that MERO has no cause
of action against NDC because it was only a member of the Oversight Committee tasked to oversee the release and
utilization of the P1.4 billion budget for the Philippine Centennial Exposition Project, and FCCC failed to comply with
the required terms for the approval of the loan drawdowns.37 It interposed counterclaims for attorney's fees and
exemplary damages.38
FCCC filed an Answer with Counterclaim and Crossclaim,39 arguing that no privity of contract exists between it
and MERO because the transaction subject of the complaint involved only MERO and Asiakonstrukt, thus, MERO has no
cause of action against FCCC.40 It further averred that FCCC's approval of Asiakonstrukt's proposal for the design,
supply, and installation of the flag structure was subject to certain conditions which were never met, hence the approval
did not take effect; in fact, the MERO flag was not utilized.41 It interposed a cross-claim against Asiakonstrukt for
reimbursement of any possible award made in favor of MERO, and prayed for attorney's fees and exemplary damages
as compulsory counterclaims.42
65
Asiakonstrukt likewise filed an Answer with Cross-claim,43 wherein it admitted the validity of MERO's claim for
the value of the spaceframe but objected on the imposition of 18% annual interest, which was allegedly not stipulated
in writing.44 It professed willingness to pay and explained that the delay was due to FCCC and NDC's refusal to pay
their obligations to MERO.45 It claimed that as a mere contractor of the project, it has no liability for the amount
collected, instead, FCCC and NDC, the project owners, should be held accountable.46 By way of cross-claim, it
contended that FCCC and NDC should be jointly and severally liable to pay Asiakonstrukt P1,000,000.00 in attorney's
fees.47
During the RTC proceedings, MERO filed a Manifestation and Motion alleging that while MERO's composition
remains the same, it was converted from a Delaware Corporation to a Delaware Limited Liability Company, and in the
process, changed its name to from "MERO Structures, Inc." to "Novum Structures LLC" on March 31, 2006.48
Accordingly, after due hearing, the RTC granted the said Manifestation and Motion in an Order49 dated October
20, 2006.
Ruling of the Regional Trial Court:
On July 19, 2011, the trial court rendered a Decision50 upholding MERO's right to collect from Asiakonstrukt and
FCCC, the former by virtue of a contract and the latter for having benefited from MERO's fulfillment of its obligation to
supply the spaceframe. However, the RTC dismissed the complaint against NDC for lack of evidence.51 The dispositive
portion of the said Decision reads:52
WHEREFORE, in view of the foregoing considerations, the Court hereby finds in favor of the
plaintiff and against defendants Asiakonstrukt and FCCC. Thus, this court hereby orders
Asiakonstrukt to pay plaintiff in the sum of Philippine Pesos: TWENTY-FIVE MILLION SIX HUNDRED
FIFTY THOUSAND (P25,650,000.00) ($570,000XP45.00) with interest at 6% per annum from date
hereof and 12% per annum from date of finality of this decision until fully paid, with right to be
reimbursed from FCCC without pronouncement as to cost.
However, the complaint against NDC is hereby DISMISSED for insufficiency of evidence and
the counterclaim of NDC is also DISMISSED [for] insufficiency of evidence.
Both MERO and Asiakonstrukt sought reconsideration but the RTC denied the same through its Order54 dated
December 19, 2011. Pertinently, the RTC held that the documentary evidence presented by MERO, wherein a 1.5%
monthly interest was stated, does not bear the signatures of any of the defendants; therefore, it is not the written
agreement contemplated by law as a basis for the imposition of stipulated interest.55 Accordingly, it stood firm with
the imposition of the legal rate of interest.56
Ruling of the Court of Appeals:
Dissatisfied, MERO and Asiakonstrukt filed separate appeals57 with the CA. In a Decision58 dated February 18,
2015, the CA denied both appeals and affirmed the RTC Decision with modification, to wit:
WHEREFORE, these separate appeals are hereby DENIED. The July 19, 2011 Decision and
December 19, 2011 Order of the Regional Trial Court, Branch 145, Makati City in Civil Case No. 02-
206 are AFFIRMED with MODIFICATION that the 12% interest per annum shall be applied from
the date of default on March 31, 1998 until June 30, 2013 only, after which date and until fully
paid, the outstanding obligation of Asian Construction and Development Corporation shall earn
interest at 6% per annum.
The appellate court ruled that while there was indeed a written stipulation between MERO and Asiakonstrukt as
to the 18% interest, contrary to the RTC's findings, the said interest may nevertheless be tempered by the courts in
the interest of justice and equity.60 Thus, the CA still agreed with the RTC that legal interest shall apply subject to the Other causes of extinguishment of obligations such as annulment, rescission, fulfillment of a resolutory condition,
modification of the interest rate in accordance with this Court's ruling in the Nacar v. Gallery Frames61 case.62 and prescription, are governed elsewhere in this Code.

Aggrieved, Asiakonstrukt filed a Motion for Reconsideration63 with the CA, but was denied in a The rules on novation are outlined in the Civil Code as follows:
Resolution64 dated October 21, 2015. Article 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
Hence, the instant Petition for Review on Certiorari65 filed by Asiakonstrukt, which essentially raises the following (2) Substituting the person of the debtor;
assignment of errors: (3) Subrogating a third person in the rights of the creditor. (1203)
1. [Whether or not the CA] seriously erred when it failed and refused to consider the letter
of MERO dated October 13, 1999 and the response letter of Asiakonstrukt dated November 8, 1999 xxxx
as a new written contract, wherein both parties agreed that MERO collects directly the unpaid
obligation of US$570,000.00 or its equivalent against the FCCC; and Article 1292. In order that an obligation may be extinguished by another which substitute the same, it is
2. [Whether or not the CA] seriously erred when it affirmed with modification the RTC decision imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point
without excluding the newly included foreign respondent Novum from being a party to this case.66 incompatible with each other.

Our Ruling xxxx

We deny the Petition for Review on Certiorari. Article 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made
even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by
No new contract was borne of the letters exchanged by MERO and Asiakonstrukt. At most, the said the new debtor gives him the rights mentioned in Articles 1236 and 1237.
exchanges merely show Asiakonstrukt's approval of MERO's extraordinary efforts in helping the former
fulfill its obligation to the latter. In any event, Asiakonstrukt's approval of MERO's request to collect Novation extinguishes an obligation between two parties when there is a substitution of objects or debtors or
directly from the FCCC did not extinguish Asiakonstrukt's obligation to pay MERO. when there is subrogation of the creditor.69 It occurs only when the new contract declares so "in unequivocal terms"
or that "the old and the new obligations be on every point incompatible with each other."70
In its Petition for Review on Certiorari, which is merely a rehash of its arguments before the lower courts,
Asiakonstrukt would want to impress upon this Court that a new contract was entered into by it and MERO, wherein In Garcia v. Llamas,71 We discussed the concept of novation as follows:
MERO waives its rights to collect from Asiakonstrukt and is subrogated to Asiakonstrukt's place to collect directly from Novation is a mode of extinguishing an obligation by changing its objects or principal
FCCC and NDC. obligations, by substituting a new debtor in place of the old one, or by subrogating a third person
to the rights of the creditor. Article 1293 of the Civil Code defines novation as follows:
This argument has utterly no factual or legal basis. Art. 1293. Novation which consists in substituting a new debtor in the
place of the original one, may be made even without the knowledge or against
There are two (2) relevant contracts in this case, namely: 1) The Construction Agreement67 between the FCCC the will of the latter, but not without the consent of the creditor. Payment by
and Asiakonstrukt dated March 16, 1998, and 2) MERO's Materials Only Proposal68 dated March 16, 1998 that was the new debtor gives him rights mentioned in articles 1236 and 1237.
accepted by Asiakonstrukt on March 17, 1998. While Asiakonstrukt is a common party in these contracts, MERO and
FCCC have no contractual relationship with each other. In general, there are two modes of substituting the person of the debtor: (1) expromision and
(2) delegacion. In expromision, the initiative for the change does not come from — and may even
A cursory perusal of the instant petition would reveal that Asiakonstrukt's argument is essentially hinged on the be made without the knowledge of — the debtor, since it consists of a third person's assumption
theory that its obligation to pay MERO was extinguished by novation of either or both of the aforementioned contracts, of the obligation. As such, it logically requires the consent of the third person and the creditor.
as evidenced by the letters exchanged between it and MERO. In delegacion, the debtor offers, and the creditor accepts, a third person who consents to the
substitution and assumes the obligation; thus, the consent of these three persons are necessary.
Both modes of substitution by the debtor require the consent of the creditor.
Article 1231 of the Civil Code provides for the different modes of extinguishing obligations, to wit:
Article 1231. Obligations are extinguished:
(1) By payment or performance; Novation may also be extinctive or modificatory. It is extinctive when an old obligation is
(2) By the loss of the thing due; terminated by the creation of a new one that takes the place of the former. It is merely modificatory
(3) By the condonation or remission of the debt; when the old obligation subsists to the extent that it remains compatible with the amendatory
(4) By the confusion or merger of the rights of creditor and debtor; agreement. Whether extinctive or modificatory, novation is made either by changing the object or
(5) By compensation; the principal conditions, referred to as objective or real novation; or by substituting the person of
(6) By novation. (Underscoring supplied)

66
 the debtor or subrogating a third person to the rights of the creditor, an act known as subjective
or personal novation. For novation to take place, the following requisites must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.
Novation may also be express or implied. It is express when the new obligation declares in
unequivocal terms that the old obligation is extinguished. It is implied when the new obligation is
incompatible with the old one on every point. The test of incompatibility is whether the two
obligations can stand together, each on with its own independent existence.72 (Underscoring
supplied)
Applying the foregoing to the instant case, it is evident that there was neither an express nor implied novation
through the letters exchanged between MERO and Asiakonstrukt.
First, there is nothing in the letters that unequivocally states that the obligation of Asiakonstrukt to pay MERO
would be extinguished.
Second, there is also no mention that MERO would substitute or subrogate Asiakonstrukt as FCCC's payee/obligee
as the letters merely show that MERO was allowed by Asiakonstrukt to try collecting from FCCC directly.
MERO, being the original party to the case, may indeed continue to litigate the present action despite any
transfer of interest. In any event, it seems that there was no actual transfer of interest but a mere change
of name by MERO to Novum Structures LLC.
The records would show that MERO filed a Manifestation and Motion, alleging that while MERO's composition
remains the same, it was converted from a Delaware Corporation to a Delaware Limited Liability Company, and in the
process, changed its name from "MERO Structures, Inc." to "Novum Structures LLC" on March 31, 2006.73
Accordingly, after due hearing, the RTC granted the said Manifestation and Motion in an Order74 dated October
20, 2006.
Given this, Asiakonstrukt's argument as to its second assignment of error patently holds no water as there was
no transfer of interest that happened. MERO, the composition of which remained unchanged, merely changed its name
to Novum Structures LLC to reflect its new status as a limited liability company. Thus, the appellate court did not
commit any serious error when it affirmed the trial court's Decision in this regard, given that no new party was
impleaded since MERO and Novum Structures LLC are essentially one and the same entity.
WHEREFORE, the Petition for Review on Certiorari is DENIED. The February 18, 2015
Decision and October 21, 2015 Resolution of the Court of Appeals in CA-G.R. CV No. 98844 are
hereby AFFIRMED.

Lastly, using the test of incompatibility, Asiakonstrukt's non-objection to MERO's request to collect from FCCC
directly is not incompatible with the obligation of Asiakonstrukt to pay MERO. It merely provided an alternative mode
in collecting payment to MERO, which is not even valid as far as FCCC is concerned since the latter did not even consent
to the same, not to mention there is no existing contractual relationship between MERO and FCCC.

With regard to the last point, it must be stressed that the consent of the third party, which is FCCC in this case,
must also be secured for the novation to be valid. Again, FCCC was never a part of the letters exchanged between
MERO and Asiakonstrukt. Thus, FCCC clearly could have not consented to any substitution or subrogation of the parties.

If the exchange of letters between MERO and Asiakonstrukt was intended to novate the original agreement
between the parties, FCCC must have first agreed to the substitution of MERO as the new payee/creditor, at least to
the extent of the US$570,000.00 representing the payment for the flag. The exchange of letters must have also stated
in clear and unequivocal terms that it has replaced the original obligation of Asiakonstrukt to MERO. Neither of these
circumstances is present in this case.

Since there was clearly no novation, Asiakonstrukt's obligation to MERO remains valid and existing. Asiakonstrukt,
therefore, must still pay respondent the full amount of US$570,000.00 with the applicable interest.

Moreover, the records show that the fulfillment of FCCC's obligation to Asiakonstrukt was never a condition to
the fulfillment of Asiakonstrukt's obligation to MERO. Absent this condition, Asiakonstrukt, as the primary contractor
for the Philippine Centennial project, assumed the risk of FCCC's nonpayment when it essentially subcontracted a part
of the said project to MERO. To emphasize, Asiakonstrukt is the only party obligated to pay MERO, not FCCC and
definitely not NDC.

67
G.R. No. 107992 October 8, 1997
ODYSSEY PARK, INC., petitioner,
vs.
HONORABLE COURT OF APPEALS and UNION BANK OF THE PHILIPPINES, respondents.
Assailed in the instant petition for review on certiorari is the decision, dated 07 September 1992, of the Court of Appeals
affirming that of the Regional Trial Court, Branch 152, of Pasig, Metro Manila, which has adjudged the contract to sell
entered into between petitioner and private respondent as having been validly rescinded.
The Court adopts the factual findings, hereunder narrated, of the appellate court:
1. On November 4, 1981, Bancom Development Corporation and plaintiff-appellant Odyssey Park, Inc., entered into
a Contract to Sell (Exhibit B-1), whereby the former agreed to sell to the latter the parcel of land with an area of
8,499 square meters situated in Baguio City and the structure constructed thereon identified as the Europa
Clubhouse.
2. Subsequently on February 11, 1982, in a document entitled "Separate Deed of Conveyance" (Annex F of the
Affidavit of Carmelito A. Montano, pages 152-154 of the Record), Bancom confirmed and acknowledged that it has
ceded, transferred and conveyed in favor of defendant-appellee Union Bank all the rights, title and interest it has
over the property.
3. The purchase price of P3,500,000.00 was, per Section 2 of the Contract to Sell, agreed to be paid as follows:
a) SEVEN HUNDRED THOUSAND PESOS (P700,000.00) as down payment, to be paid by Odyssey as follows:
(i) ONE HUNDRED THOUSAND (P100,000.00) PESOS upon signing of this Contract;
(ii) TWO HUNDRED THOUSAND PESOS (P200,000.00), sixty (60) days from and after the date of this Contract.
The said amount shall be covered by a check postdated sixty (60) days after the date of this Contract issued and
delivered by Odyssey to Bancom upon the signing of this Contract; and
(iii) FOUR HUNDRED THOUSAND PESOS (P400,000.00), ninety (90) days from and after the date of this Contract.
The said amount shall be covered by a check postdated ninety (90) days after the date of this Contract issued
and delivered by Odyssey to Bancom upon signing of this Contract.
b) The balance of TWO MILLION EIGHT HUNDRED THOUSAND PESOS (P2,800,000.00) shall be paid by Odyssey to
Bancom within a period of three (3) years by twelve (12) equal quarterly amortizations of P298,346.08 each,
inclusive of the interest and service charge set forth in Section 3 hereof, the first amortization to become due and
payable four (4) months and fifteen (15) days after the date of this Contract, and the succeeding amortizations at
the end of each quarter thereafter until the balance of the purchase price of the Property is paid in full.
4. It was also agreed in Section 5 of the Contract to Sell that:
Sec. 5: In the event Odyssey fails to pay any portion of the purchase price of the Property or the interest and
service charge thereon as and when it falls due, or otherwise fails to comply with or violate any of the provisions
of this Contract, Bancom may at its absolute discretion cancel and rescind this Contract and declare the same as
null, void and no further force and effect by serving on Odyssey a written notice of cancellation and rescission thirty
(30) days in advance.
In the event this Contract is cancelled and rescinded as provided in this Section, all the amounts which the Odyssey
may have paid to Bancom pursuant to and in accordance with this Contract shall be forfeited in favor of Bancom
as rentals for the use and occupancy of the Property and as penalty for the breach and violation of this Contract.
Furthermore, all the improvements which Odyssey may have introduced on the Property shall form part thereof
68
and belong to Bancom without right of reimbursements to Odyssey; Provided, that Bancom may at its absolute
discretion instead require Odyssey to remove such improvements from the Property at expense of Odyssey.
5. On November 26, 1981, twenty-two (22) days after the execution of the contract plaintiff-appellant paid the
amount of P100,000.00. Other payments, also beyond the stipulated period, (see Odyssey Park, Inc., Statement of
Application of Payment, Annex A of the Supportive Affidavit of Nicefero S. Agaton, p. 309 of the record) in the total
sum of P110,000.00 were made as follows:
September 22, 1982 P20,000.00
April 13, 1983 10,000.00
April 30, 1983 10,000.00
July 20, 1983 50,000.00
September 19, 1983 20,000.00.
6. On December 23, 1981, Mr. Vicente A. Araneta, President of Europa Condominium Villas, Inc., wrotes defendant-
appellee Union Bank, a letter, Exhibit E, stating that the Europa Center was reported to prospective buyers as well
as government authorities as part of common areas and amenities under the condominium concept of selling to the
public and for that reason wants to make it of record that Europa Condominium Villas, Inc., questions the propriety
of the contract to sell.
7. On January 4, 1982, plaintiff-appellant Odyssey Park, Inc., through its Chairman of the Board, Mr. Carmelito A.
Montano, wrote Bancom Development Corp. a letter, Exhibit F, stating that it acknowledges receipt of a copy of the
letter-protest from the Europa Condominium Villas, Inc., and that in the meantime that there is a question on the
propriety of the sale, it is stopping/withholding payments of the amortization.
8. On the same date, January 4, 1982, Bancom, through its Senior Vice-President, wrote Europa Condominium Villas,
Inc. a letter, Exhibit H, explaining that the Europa Center and the parcel of land on which it is built are not part of
the Europa Condominium Villas, Inc.
9. On March 29, 1983, defendant-appellee Union Bank wrote plaintiff-appellant Odyssey Park, Inc., a letter (Annexes
F, F-1 of the Supportive Affidavit of Nicefero S. Agaton, pp. 317-318 of the record) demanding payment of the
overdue account of P2,193,720.91, inclusive of interest and service charges, otherwise the contract to sell would be
cancelled and rescinded;
10. On April 12, 1983, plaintiff-appellant Odyssey wrote defendant-appellee Union Bank a letter (Annex F-2 of the
Supportive Affidavit of Nicefero S. Agaton, pp. 319-320 of the record) proposing a manner of settlement which
defendant-appellee Union Bank answered (Annex F-3, p. 321 of the record) asking for more details of the proposal.
The series of communications led to the drafting of a Memorandum of Agreement (Exhibit N) which was not, however,
signed by the parties.
11. On January 6, 1984, defendant-appellee Union Bank, through counsel, wrote plaintiff-appellant Odyssey Park,
Inc., a letter (Exhibit O) formally rescinding and/or cancelling the contract to sell and demanding that plaintiff-
appellant vacate and peaceably surrender possession of the premises.
12. On or about August 20, 1984, for failure of plaintiff-appellant to vacate, defendant-appellee filed a case for illegal
detainer and damages (Exhibit P).
13. On July 5, 1988, plaintiff-appellant filed this case for "Declaration of the Nullity of the Rescission of the Contract
to Sell With Damages".1 (Emphasis ours.)
After the trial, the lower court rendered judgment in favor of private respondent, declaring the Contract to Sell of 04
November 1981 to have been properly rescinded; dismissing the complaint for being frivolous and unfounded; and
ordering the plaintiff to pay the defendant P300,000.00 by way of attorney's fees and litigation expenses. The
judgment, as so heretofore stated, was affirmed by respondent appellate court.
Its motion for reconsideration having been denied on 22 November 1992, petitioner corporation seasonably filed the
present petition questioning the decision of the appellate court.
The Court rules for affirmance of the appealed decision.
The issues raised by petitioner which generally are factual in nature and previously taken up by the appellate court
cannot in this instance be freely examined all over again. It is not the function of the Supreme Court to analyze and to
weigh anew the evidence already passed upon by the Court of Appeals. The authority of this Court is confined to
correcting errors of law, if any, that might have been committed below. 2 Absent the recognized exceptions, which are
not here extant, factual findings of the Court of Appeals are conclusive.
Hardly, in this case, can it be said that there was no basis at all for debunking the contention of petitioner to the effect
that because Europa Condominium Villas, Inc., had questioned the right of Bancom to sell the property, petitioner
thereby was enfranchised to suspend or withhold payment to Bancom. Respondent appellate court, seconding the
findings of the trial court, quoted the latter; thus:
First, the title of Union Bank over the property (TCT No. T-33725) is clear without any encumbrance or adverse claim.
Second, Europa condominium Villas, Inc. has not earnestly questioned Bancom's right to sell. If Europa is in earnest,
it should have filed the necessary action in Court to protect its right to a valuable property. Third, Europa would not
have offered to buy the property from Bancom for P6 Million if it was claiming ownership over it. Fourth, the letters
which plaintiff claim to be proof of Europa's persistence in questioning Bancom's right to sell the property do not
really question Bancom's right to do so but are actually money claims of Europa Condominium Villas, Inc. against
Odyssey for unpaid water bills and other services rendered by Europa. 3
The only real legal issue, it appears to the Court, is whether or not the rescission of the contract to sell by private
respondent accords with the requirements of Republic Act ("R.A.") No. 6552, also known as "An Act to Protect Buyers
of Real Estate on Installment Payments" which, petitioner insists, requires a cancellation or rescission of the contract
by means of a notarial act. A mere letter (dated 06 January 1984), or short of such a notarial act, according to
petitioner, would be utterly deficient.
Unfortunately for petitioner, the invocation of Republic Act No. 6552 is misplaced. This law, which normally applies to
the sale or financing of real estate on installment payments, excludes "industrial lots, commercial buildings, and sales
to tenants under R.A. No. 3844." The appellate court has thus aptly said:
While the law applies to all transactions or contracts involving the sale or financing of real estate on installment
payments, including residential condominium apartments, excluded are industrial lots, commercial buildings and
sales to tenants under R.A. 3844 as amended. The property subject of the contract to sell is not a residential
condominium apartment. Even on the basis of the letter of Mr. Vicente A. Araneta, Exhibit E, the building is merely
"part of common areas and amenities under the Condominium concept of selling to the public". The property subject
of the contract to sell is more of a commercial building.4
Neither would Article 1191 of the Civil Code govern. Article 1191, in full, provides:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
69
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The Court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance
with articles 1385 and 1388 and the Mortgage Law.
In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a
breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an
obligatory force.5 The breach contemplated in Article 1191 of the Code is the obligor's failure to comply with an
obligation already extant, not a failure of a condition to render binding that obligation. In any event, the failure of
petitioner to even complete the downpayment stipulated in the contract to sell puts petitioner corporation far from
good stead in urging that there has been substantial compliance with the contract to sell within the meaning of Article
1191 of the Code.
So, too, must Article 1592 of the Civil Code be held inapplicable. This law states:
Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the
price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after
the expiration of the period, as long as no demand for rescission of the contract has been made upon him either
judicially or by a notarial act. After the demand, the court may not grant him a new term.
It is clear that the above provisions contemplate neither a conditional sale nor a contract to sell but an absolute sale.6
What must instead be held to rule in the case at bar is the agreement of the parties themselves. Section 5 of their
contract to sell reads:
Sec. 5: In the event Odyssey fails to pay any portion of the purchase price of the Property or the interest and service
charge thereon as and when it falls due, or otherwise fails to comply with or violate any of the provisions of this
Contract, Bancom may at its absolute discretion cancel and rescind this Contract and declare the same as null, void
and no further force and effect by serving on Odyssey a written notice of cancellation and rescission thirty (30) days
in advance.
In the event this Contract is cancelled and rescinded as provided in this Section, all the amounts which the Odyssey
may have paid to Bancom pursuant to and in accordance with this Contract shall be forfeited in favor of Bancom as
rentals for the use and occupancy of the Property and as penalty for the breach and violation of this Contract.
Furthermore, all the improvements which Odyssey may have introduced on the Property shall form part thereof and
belong to Bancom without right of reimbursements to Odyssey; Provided, that Bancom may at its absolute discretion
instead require Odyssey to remove such improvements from the Property at expense of Odyssey. 7
It is a familiar doctrine in the law on contracts that the parties are bound by the stipulations, clauses, terms and
conditions they have agreed to,8 the only limitation being that these stipulations, clauses, terms and conditions are
not contrary to law, morals, public order or public policy. 9 Not being repugnant to any legal proscription, the
agreement entered into by the parties herein involved must be respected and held to be the law between them.
WHEREFORE, the decision appealed from is AFFIRMED in toto. Costs against petitioner.
G.R. No. 163654 October 8, 2014
BPI EXPRESS CARD CORPORATION,* Petitioner,
vs.
MA. ANTONIA R. ARMOVIT, Respondent.
This case involves a credit card holder's claim for damages arising from the suspension of her credit privileges due to
her supposed failure to reapply for their reactivation. She has insisted that she was not informed of the condition for
reactivation.
Petitioner BPI Express Credit Card Corporation (BPI Express Credit) seeks the reversal of and assails the adverse
decision promulgated on February 26, 2004,1 whereby the Court of Appeals (CA) affirmed the judgment rendered on
April 22, 1996 by the Regional Trial Court, Branch 216, in Quezon City, (RTC) adjudging it liable to pay moral and
exemplary damages, attorney’s fees and costs of suit to its credit card holder Ma. Antonia R. Armovit, the respondent
herein.2
Armovit, then a depositor of the Bank of the Philippine Islands at its Cubao Branch, was issued by BPI Express Credit
a pre-approved BPI Express Credit Card (credit card) in 1989with a credit limit of ₱20,000.00 that was to expire atthe
end of March 1993.3 On November 21, 1992, she treated her British friends from Hong Kongto lunch at Mario’s
Restaurant in the Ortigas Center in Pasig. As the host, she handed to the waiter her credit card to settle the bill, but
the waiter soon returned to inform her that her credit card had been cancelled upon verification with BPI Express Credit
and would not be honored. Inasmuch asshe was relying on her credit card because she did not then carry enough cash
that day, her guests were made to share the bill to her extreme embarrassment.
Outraged, Armovit called BPI Express Credit to verify the status of her credit card. She learned that her credit card had
been summarily cancelled for failure to pay her outstanding obligations. She vehemently denied having defaulted onher
payments. Thus, by letter dated February 3, 1993,4 she demanded compensation for the shame, embarrassment and
humiliation she had suffered in the amount of ₱2,000,000.00.
In its reply letter dated February 5, 1993,5 BPI Express Credit claimed that it had sent Armovit a telegraphic message
on March 19, 1992 requesting her to pay her arrears for three consecutive months, and that she did not comply with
the request, causing it totemporarily suspend her credit card effective March 31, 1992.6 It further claimed that she had
been notified of the suspension and cautioned to refrain from using the credit card to avoid inconvenience or
embarrassment;7 and that while the obligation was settled by April, 1992, she failed to submit the required application
form in order to reactivate her credit card privileges. Thus, BPI Express Credit countered that her demand for monetary
compensation had no basis in fact and in law.
On March 12, 1993, Armovit received a telegraphic message from BPI Express Credit apologizing for its error of
inadvertently including her credit card in Caution List No. 225 dated March 11, 1993 sent to its affiliated merchants. 8
As a result, Armovit sued BPI Express Credit for damages in the RTC, insisting that she had been a credit card holder
in good standing, and that she did not have any unpaid bills at the time of the incident.
In its answer with counterclaim,9 BPI Express Credit raised the defense of lack of cause of action,and maintained that
Armovit had defaulted in her obligations for three consecutive months, thereby causing the temporary suspension of
her credit card in accordance with the terms and conditions of the credit card. 10 It pointed out that Armovit had been
duly notified of the suspension; that for her failure to comply with the requirement for the submission of the application
form and other documents as directed in its letter dated April 8, 1992, 11 her credit card had not been reactivated and
70
had remained in the list of suspended cards at the time she used it on November 21, 1992; and thatthe telegraphic
message of March 11, 1993, which was intended for another client whose credit card had been erroneously included in
the caution list, was mistakenly sent to her.12
Judgment of the RTC
In the judgment rendered April 22, 1996,13 the RTC, ruling in favor of Armovit, observed that the terms and conditions
governing the issuance and use of the credit card embodied in the application formhad been furnished to her for the
first time only on April 8, 1992, or after her credit card privileges had already been suspended; that, accordingly, she
could not be blamed for not complying with the same; that even if she had been notified of the temporary suspension
of her credit card, her payment on April 1, 1992 had rendered the continued suspension of her credit card unjustified;
and that there was no clear showing that the submission of the application form had been a condition precedent to the
lifting of its suspension.
Finding BPI Express Credit guilty ofnegligence and bad faith, the RTC ordered it to pay Armovit moral damages of
₱100,000.00; exemplary damages and attorney’s fees each in the amount of ₱10,000.00; and the costs of suit.
Decision of the CA
Both parties appealed to the CA.
On February 26, 2004, the CA promulgated its assailed decision,14 concurring with the RTC, and declaredthat because
Armovit had not signed any application form in the issuance and renewals of her credit card from 1989 up to 1992,
she could not have known the terms and conditions embodied in the application form even ifthe credit card had specified
that its use bound the holder to its terms and conditions. It did not see merit in BPI Express Credit’s contention that
the submission of a new application form was a pre-requisite for the lifting ofthe suspension of her credit card, inasmuch
as such condition was not stated in a clear and unequivocal manner in its letter dated April 8, 1992. It noted that the
letter of apology mentioning another inadvertence committed, even if it claimed the letter of apology as intended for
another card holder, still highlighted BPI Express Credit’s negligence in its dealings with her account. Anent Armovit’s
appeal, the CA did not increase the amounts of damages for lack of basis, observing that moral and exemplary damages
were awarded not to enrich her at the expense of BPI Express Credit but to alleviate the anxiety and embarrassment
suffered.
BPI Express Credit’s motion for reconsideration was denied through the resolution promulgated on May 14, 2004.15
Hence, this appeal by petition for review on certiorari.
Issue
The sole issue is whether or not the CA erred in sustaining the award of moral and exemplary damages in favor of
Armovit.
Ruling of the Court
The petition for review lacks merit.
The relationship between the credit card issuer and the credit card holder is a contractual one that is governed by the
terms and conditions found in the card membership agreement.16 Such terms and conditions constitute the law between
the parties. In case of their breach, moral damages may be recovered where the defendant is shown to have acted
fraudulently or in bad faith.17 Malice or bad faith implies a conscious and intentional design to do a wrongful actfor a
dishonest purpose or moral obliquity.18 However, a conscious or intentional design need not always be present because
negligence may occasionally be so gross as to amount to malice or bad faith.19 Hence, bad faith in the context of Article
2220 of the Civil Code includes gross negligence.20
BPI Express Credit contends thatit was not grossly negligent in refusing to lift the suspension of Armovit’s credit card
privileges inasmuch as she had not complied with the requisite submission of a new application form; and that under
the circumstances its negligence, if any, was not so gross as to amount to malice or bad faith following the ruling in
Far East Bank and Trust Company v. Court of Appeals.21
dealing with its clients, Armovit included. Indeed, BPI Express Credit did not observe the prudence expected of banks
whose business was imbued with public interest.
We hold that the CA rightly sustained the award of ₱100,000.00 as moral damages. To us, too, that amount was fair
and reasonable under the circumstances. Similarly, the grant of exemplary damages was warranted under Article 2232
of the New Civil Code because BPI Express Credit acted in a reckless and oppressive manner. Finally, with Armovit
having been forced to litigate in order to protect her rights and interests, she was entitled to recover attorney's fees
and expenses oflitigation.28
WHEREFORE, the Court AFFIRMS the decision promulgated on February 26, 2004; and ORDERS the petitioner to pay
the costs of suit.

The Court disagrees with the contentions of BPI Express Credit.1âwphi1 The Terms and Conditions Governing the
Issuance and Use of the BPI Express Credit Card 22 printed on the credit card application form spelled out the terms
and conditions of the contract between BPI Express Credit and its card holders, including Armovit. Such terms and
conditions determined the rights and obligations of the parties. 23 Yet, a review of such terms and conditions did not
reveal that Armovit needed to submit her new application as the antecedent condition for her credit card to be taken
out of the list of suspended cards.

Considering that the terms and conditions nowhere stated that the card holder must submit the new application form
in order to reactivate her credit card, to allow BPI Express Credit toimpose the duty to submit the new application form
in order to enableArmovit to reactivate the credit card would contravene the Parol Evidence Rule. 24 Indeed, there was
no agreement between the parties to add the submission of the new application form as the means to reactivate the
credit card. When she did not promptly settle her outstanding balance, BPI Express Credit sent a message on March
19, 1992 demanding payment with the warning that her failure to pay would force it to temporarily suspend her credit
card effective March 31, 1992. It then sent another demand letter dated March 31, 1992 requesting her to settle her
obligation in order to lift the suspension of her credit card and prevent its cancellation. In April 1992, she paid her
obligation. In the context of the contemporaneous and subsequent acts of the parties, the only condition for the
reinstatement of her credit card was the payment of her outstanding obligation. 25 Had it intended otherwise, BPI
Express Credit would have surelyu informed her of the additional requirement in its letters of March 19, 1992 and
March 31, 1992. That it did not do so confirmed that they did not agree on having her submit the new application form
as the condition to reactivate her credit card.

The letter of BPI Express Credit dated April 8, 1992 did not clearly and categorically inform Armovit that the submission
of the new application form was the pre-condition for the reactivation of her credit card. The statement in the letter
(i.e., "… accomplish the enclosed application form and provide us with informations/documents that can help our Credit
Committee in reevaluating your existingfacility with us.") merely raised doubt as to whether the requirement had really
been a pre-condition or not. With BPI Express Credit being the party causing the confusion, the interpretation of the
contract could not be donein its favor.26 Moreover, it cannot be denied that a credit card contract is considered as a
contract of adhesion because its terms and conditions are solely prepared by the credit card issuer. Consequently, the
terms and conditions have to be construed against BPI Express Credit as the party who drafted the contract.27

Bereft of the clear basis to continuewith the suspension of the credit card privileges of Armovit, BPI Express Credit
acted in wanton disregard of its contractual obligations with her. We concur with the apt observation by the CA that
BPI Express Credit’s negligence was even confirmed by the telegraphic message it had addressed and sent to Armovit
apologizing for the inconvenience caused in inadvertently including her credit card in the caution list. It was of no
consequence that the telegraphic message could have been intended for another client, as BPI Express Credit
apparently sought to convey subsequently, because the tenor ofthe apology included its admission of negligence in

71
G.R. No. 158622
SPOUSES ROBERT ALAN L. and NANCY LEE LIMSO, Petitioners,
vs.
PHILIPPINE NATIONAL BANK and THE REGISTER OF DEEDS OF DAVAO CITY, Respondents.
There is no mutuality of contract when the interest rate in a loan agreement is set at the sole discretion of one party.
Nor is there any mutuality when there is no reasonable means by which the other party can determine the applicable
interest rate. These types of interest rates stipulated in the loan agreement are null and void. However, the nullity of
the stipulated interest rate does not automatically nullify the provision requiring payment of interest. Certainly, it does
not nullify the obligation to pay the principal loan obligation.
These consolidated cases arose from three related actions filed before the trial courts of Davao City.
In 1993, Spouses Robert Alan L. Limso and Nancy Lee Limso (Spouses Limso) 1 and Davao Sunrise Investment and
Development Corporation (Davao Sunrise) took out a loan secured by real estate mortgages from Philippine National
Bank.2
The loan was in the total amount of P700 million, divided into two (2) kinds of loan accommodations: a revolving credit
line of P300 million, and a seven-year long-term loan of P400 million.3
To secure the loan, real estate mortgages were constituted on four (4) parcels of land registered with the Registry of
Deeds of Davao City.4 The parcels of land covered by TCT Nos. T-147820, T-151138, and T-147821 were registered in
the name of Davao Sunrise, while the parcel of land covered by TCT No. T-140122 was registered in the name of
Spouses Limso.5
In 1995, Spouses Limso sold the parcel of land covered by TCT No. T-140122 to Davao Sunrise.6
Spouses Limso and Davao Sunrise had difficulty in paying their loan. In 1999, they requested that their loan be
restructured. After negotiations, Spouses Limso, Davao Sunrise, and Philippine National Bank executed a Conversion,
Restructuring and Extension Agreement.7
The principal obligation in the restructured agreement totalled ₱1.067 billion. This included ₱217.15 million unpaid
interest.8
The restructured loan was divided into two (2) parts. Loan I was for the principal amount of ₱583.18 million, while
Loan II was for the principal amount of ₱483.78 million.9 The restructured loan was secured by the same real estate
mortgage over four (4) parcels of land in the original loan agreement. All the properties were registered in the name
of Davao Sunrise.10
The terms of the restructured loan agreement state:
SECTION 1. TERMS OF THE CONVERSION, RESTRUCTURING AND EXTENSION
1.01 The Conversion/Restructuring/Extension. Upon compliance by the Borrowers with the conditions precedent
provided herein, the Obligations shall be converted, restructured and/or its term extended effective January 1,
1999 (the "Effectivity Date") in the form of term loans (the "Loans") as follows:
(a) The Credit Line portion of the Obligations is hereby converted and restructured into a Seven-Year Long Term
Loan (the "Loan I") in the principal amount of ₱583.18 Million;
72
(b) The original term of the Loan is hereby extended for another four (4) years (from September 1, 2001 to
December 31, 2005), and interest portion of the Obligations (including the interest accruing on the Credit Line
and Loan up to December 31, 1998 estimated at ₱49.83 Million) are hereby capitalized. Accordingly, both the
Loan and Interest portions of the Obligations are hereby consolidated into a Term Loan (the "Loan II") in the
aggregate principal amount of ₱483.78 Million;
SECTION 2. TERMS OF LOAN I
2.01 Amount of Loan I. Loan I shall be in the principal amount not exceeding PESOS: FIVE HUNDRED EIGHTY
THREE MILLION ONE HUNDRED EIGHTY THOUSAND (₱583,180,000.00).
2.02 Promissory Note. Loan I shall be evidenced by a promissory note (the "Note I") to be issued by the Borrowers
in favor of the Bank in form and substance satisfactory to the Bank.
2.03 Principal Repayment. The Borrowers agree to repay Loan I within a period of seven (7) years (inclusive of a
one (1) year grace period) in monthly amortizations with the first amortization to commence on January 2000 and
a balloon payment on or before the end of the 7th year on December 2005.
2.04 Interest. (a) The Borrowers agree to pay the Bank interest on Loan I from the Effective Date, until the date
of full payment thereof at the rate per annum to be set by the Bank. The interest rate shall be reset by the Bank
every month.
(b) The interest provided in clause (a) above shall be payable monthly in arrears to commence on January, 1999.
SECTION 3. TERMS OF LOAN II
3.01 Amount of Loan II. Loan II shall be in the principal amount not exceeding PESOS: FOUR HUNDRED EIGHTY
THREE MILLION SEVEN HUNDRED EIGHTY THOUSAND (₱483,780,00.00).
3.02 Promissory Note. Loan II shall be evidenced by a promissory note (the "Note II") to be issued by the Borrowers
in favor of the Bank in form and substance satisfactory to the Bank.
3.03 Principal Repayment. The Borrowers agree to repay Loan II within a period of seven (7) years (inclusive of a
one (1) year grace period) in monthly amortizations with the first amortization to commence on January 2000 and
a balloon payment on or before December 2005.
3.04 Interest. (a) The Borrowers agree to pay the Bank interest on Loan II from the Effective Date, until the date
of full payment thereof at the rate per annum to be set by the Bank. The interest rate shall be reset by the Bank
every month.
(b) The interest provided in clause (a) above shall be payable monthly in arrears to commence on January
1999.11 (Emphasis provided)
Spouses Limso and Davao Sunrise executed promissory notes, both dated January 5, 1999, in Philippine National
Bank’s favor. The promissory notes bore the amounts of ₱583,183,333.34 and ₱483,811,798.93.12 The promissory
note for Loan II includes interest charges because one of the preambular clauses of the Conversion, Restructuring and
Extension Agreement states that:
WHEREAS, the Borrowers acknowledge that they have outstanding obligations (the "Obligations") with the Bank
broken down as follows:
(i) Credit Line – ₱583.18 Million (as of September 30, 1998);
(ii) Loan – ₱266.67 Million (as of September 30, 1998); and
(iii) Interest – ₱217.15 Million (as of December 31, 1998)[.]13
Spouses Limso and Davao Sunrise encountered financial difficulties. Despite the restructuring of their loan, they were
still unable to pay.14 Philippine National Bank sent demand letters. Still, Spouses Limso and Davao Sunrise failed to
pay.15
On August 21, 2000, Philippine National Bank filed a Petition for Extrajudicial Foreclosure of Real Estate Mortgage
before the Sheriff’s Office in Davao City.16 The Notice of Foreclosure was published. The bank allegedly complied with
all the other legal requirements under Act No. 3135.17 The auction sale was held on October 26, 2000. Ball Park Realty
Corporation, through its representative Samson G. To, submitted its bid in the amount of ₱1,521,045,331.49. Philippine
National Bank’s bid was in the amount of ₱1,521,055,331.49. Thus, it was declared the highest bidder. 19
After the foreclosure sale, but before the Sheriff could issue the Provisional Certificate of Sale, 20 Spouses Limso and
Davao Sunrise filed a Complaint for Reformation or Annulment of contract against Philippine National Bank, Atty.
Marilou D. Aldevera, in her capacity as Ex-Officio Provincial Sheriff of Davao City, and the Register of Deeds of Davao
City.21 The Complaint was filed on October 30, 2000, raffled to Branch 17 of the Regional Trial Court of Davao City,
and docketed as Civil Case No. 28,170-2000.22 It prayed for:
[the] declaration of nullity of unilateral imposition and increases of interest rates, crediting of illegal interests collected
to [Spouses Limso and Davao Sunrise’s] account; elimination of all uncollected illegal interests; reimposition of new
interest rates at 12% per annum only from date of filing of Complaint, total elimination of penalties; elimination also
of attorney’s fees or its reduction; declaration of nullity of auction sale and the foreclosure proceedings; reduction of
both loan accounts; reformation or annulment of contract, reconveyance, damages and injunction and restraining
order.23
Immediately after the Complaint was filed, the Executive Judge24 of the Regional Trial Court of Davao City issued a 72-
hour restraining order preventing Philippine National Bank from taking possession and selling the foreclosed
properties.25
Spouses Limso subsequently filed an amended Complaint.26 The prayer in the amended Complaint stated:
PRAYER
WHEREFORE, it is respectfully prayed that judgment issue in favor of plaintiffs and against the defendants:
ON THE TEMPORARY RESTRAINING ORDER
1. That, upon the filing of the above-entitled case, a TEMPORARY RESTRAINING ORDER be maintained enjoining
the defendants from executing the provisional Certificate of Sale and final Deed of Absolute Sale; confirmation
of such sale; taking immediate possession thereof and from selling to third parties those properties covered by
TCT Nos. T-147820, T-147821,T-246386 and T-247012 and its improvements nor to mortgage or pledge the
same prior to the final outcome of the above-entitled case, including other additional acts of foreclosure;.
2. That, plaintiffs’ application for the issuance of the [Writ of Preliminary Injunction] be concluded within the
20 days lifetime period of the [Temporary Restraining Order], and
AFTER TRIAL ON THE MERITS
3. To declare the injunction as final;
4. Declaring that the unilateral increases of interest rates imposed by the defendant bank over and above the
stipulated interest rates provided for in the Promissory Notes, be also considered as null and void and thereafter
lowering the same to 12% per annum only, from the date of the filing of the Complaint;
5. Declaring also that all illegally imposed interest rates and penalty charges be considered eliminated and/or
deducted from any account balance of plaintiffs;
6. Declaring also either the complete elimination of attorney’s fees, or in the alternative, reducing the same to
P500,000.00 only;
7. Declaring the reduction of the loan account balance to P827,012,149.50 only;
8. That subsequent thereto, ordering a complete reformation of the loan agreement and Real Estate Mortgage
which will now embody the lawful terms and conditions adjudicated by this Honorable Court, or in the alternative,
ordering its annulment, as may be warranted under the provision of Article 1359 of the New Civil Code;
9. Ordering the defendant Register of Deeds to refrain from issuing a new title in favor of third parties, and to
execute the necessary documents necessary for the reconveyance of the properties now covered by TCT Nos. T-
147820, T-147821, T-246386 and T-247012 from the defendant bank in favor of the plaintiffs upon payment of
the recomputed loan accounts;
10. Ordering also the defendant bank to pay to the plaintiffs the sum of at least P500,000.00 representing
business losses and loss of income by the later [sic] arising from the improvident and premature institution of
extrajudicial foreclosure proceedings against the plaintiffs;
11. Ordering again the defendant bank to pay to the plaintiffs the sum of P400,000.00 as attorney’s fees and the
additional sum of P100,000.00 for expenses incident to litigation; and
73
12. To pay the costs and for such other reliefs just and proper under the circumstances. 27 (Underscoring in the
original)
Through the Order28 dated November 20, 2000, Branch 17 of the Regional Trial Court of Davao City denied Spouses
Limso’s application for the issuance of a writ of preliminary injunction. 29
Spouses Limso moved for reconsideration. On December 4, 2000, Branch 17 of the Regional Trial Court of Davao City
set aside its November 20, 2000 Order and issued a writ of preliminary injunction. 30
Philippine National Bank then moved for reconsideration of the trial court’s December 4, 2000 Order. The bank’s Motion
was denied on December 21, 2000. Hence, Philippine National Bank filed before the Court of Appeals a Petition for
Certiorari assailing the December 4, 2000 and December 21, 2000 Orders of the trial court. This was docketed as CA
G.R. SP. No. 63351.31
In the meantime, Branch 17 continued with the trial of the Complaint for Reformation or Annulment of Contract with
Damages.32
On January 10, 2002, the Court of Appeals issued the Decision33 in CA G.R. SP. No. 63351 setting aside and annulling
the Orders dated December 4, 2000 and December 21, 2000 and dissolving the writ of preliminary injunction. 34
Spouses Limso and Davao Sunrise moved for reconsideration of the Court of Appeals’ January 2, 2002 Resolution in
CA G.R. SP No. 63351 but the motion was denied.35 They then filed a Petition for Review on Certiorari before this
court.36 Their Petition was docketed as G.R. No. 152812, which was denied on procedural grounds. 37
In view of the dissolution of the writ of preliminary injunction, Acting Clerk of Court and Ex-officio Provincial Sheriff
Rosemarie T. Cabaguio issued the Sheriff’s Provisional Certificate of Sale dated February 4, 2002 in the amount of
₱1,521,055,331.49.38 However, the Sheriff’s Provisional Certificate of Sale 39 did not state the applicable redemption
period and the redemption price payable by the mortgagor or redemptioner.40
On the same date, Philippine National Bank presented the Sheriff’s Provisional Certificate of Sale to the Register of
Deeds of Davao City in order that the title to the foreclosed properties could be consolidated and registered in Philippine
National Bank’s name. The presentation was recorded in the Primary Entry Book of Davao City’s Registry of Deeds
under Act No. 496 and entered as Entry Nos. 4762 to 4765.41
On February 5, 2002, the registration of the Certificate of Sale was elevated en consulta by Atty. Florenda T. Patriarca
(Atty. Patriarca) , Acting Register of Deeds of Davao City, to the Land Registration Authority in Manila. This was
docketed as Consulta No. 3405.42
Acting on the consulta, the Land Registration Authority issued the Resolution dated May 21, 2002, which states: 43
"WHEREFORE, in view of the foregoing, the Sheriff’s Provisional Certificate of Sale dated February 4, 2002 is
registrable on TCT Nos. T-147820, T-147386, T-247012 provided all other registration requirements are complied
with."44
Meanwhile, on March 25, 2002, the Spouses Limso filed a Petition for Declaratory Relief with Prayer for Temporary
Restraining Order/Injunction on March 25, 2002 against Philippine National Bank, Atty. Rosemarie T. Cabaguio, in her
capacity as Ex-Officio Provincial Sheriff, and the Register of Deeds of Davao City (Petition for Declaratory Relief). The
Sheriff’s Provisional Certificate of Sale allegedly did not state any redemption price and period for redemption. This
case was raffled to Branch 14 of the Regional Trial Court of Davao City and docketed as Civil Case No. 29,036-2002.45
The Petition for Declaratory Relief was filed while the Complaint for Reformation or Annulment with Damages was still
pending before Branch 17 of the Regional Trial Court of Davao City.
Spouses Limso subsequently filed an Amended Petition for Declaratory Relief, alleging:
6. That Petitioners with the continuing crisis and the unstable interest rates imposed by respondent PNB admittedly
failed to pay their loan, the demand letters were sent to both debtors-mortgagors separately, one addressed to the
Petitioners and another addressed to DSIDC, the last of which was dated April 12, 2000 xxx;
7. That on August 21, 200(0), respondent PNB filed a Petition for Extrajudicial Foreclosure of the mortgaged properties
against the petitioners-mortgagors-debtors and DSIDC;
8. That on October 26, 2000, the mortgaged properties were auctioned with the respondent PNB as the highest
bidder;
9. That on February 4, 2002, a Sheriff’s Provisional Certificate of Sale was issued by respondent Sheriff who certified
xxxx
10. That the said Sheriff’s Provisional Certificate of Sale did not contain a provision usually contained in a regular
Sheriff’s Provisional Certificate of Sale as regards the period of redemption and the redemption price to be raised
within the ONE (1) YEAR redemption period in accordance with Act 3135, under which same law the extrajudicial
petition for sale was conducted as mentioned in the Certificate;
11. That the Sheriff’s Provisional Certificate of Sale has not yet been registered with the office of respondent Register
of Deeds yet; that petitioners and DSIDC are still in actual possession of the subject properties;
12. That sometime in the middle part of year 2000, Republic Act No. 8791 otherwise known as General Banking Laws
of 2000 was approved and finally passed on April 12, 2000 and took effect sometime thereafter;
13. That among the provisions of the said law particularly, Section 47 dealt with Foreclosure of Real Estate Mortgage,
quoted verbatim hereunder as follows:
"Sec. 47. Foreclosure of Real Estate Mortgage. – In the event of foreclosure, whether judicially or extrajudicially,
or any mortgage on real estate which is security for any loan or other credit accommodation granted, the mortgagor
or debtor whose real property has been sold for the full or partial payment of his obligation shall have the right
within one year after the sale of the real estate, to redeem the property by paying the amount due under the
mortgage deed, with interest thereon at rate specified in the mortgage, and all the costs and expenses incurred by
the bank or institution from the sale and custody of said property less the income derived therefrom. However, the
purchaser at the auction sale concerned whether in a judicial or extra-judicial foreclosure shall have the right to
enter upon and take possession of such property immediately after the date of the confirmation of the auction sale
and administer the same in accordance with law. Any petition in court to enjoin or restrain the conduct of foreclosure
proceedings instituted pursuant to this provision shall be given due course only upon the filing by the petitioner of
a bond in an amount fixed by the court conditioned that he will pay all the damages which the bank may suffer by
the enjoining or the restraint of the foreclosure proceeding.
Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an extrajudicial foreclosure,
shall have the right to redeem the property in accordance with this provision until, but not after, the registration
of the certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three
(3) months after foreclosure, whichever is earlier. Owners of property that has been sold in a foreclosure sale prior
to the effectivity of this Act shall retain their redemption rights until their expiration."
14. That it is clear and evident that the absence of provisions as to redemption period and price in the Sheriff’s
Provisional Certificate of Sale issued by respondent Sheriff, that respondent PNB and Sheriff intended to apply the
provisions of Section 47 of Republic Act No. 8791 which reduced the period of redemption of a juridical person whose
property is being sold pursuant to an extrajudicial foreclosure sale until but not after the registration of the Certificate
of Sale with the applicable Register of Deeds which in no case shall be more than three (3) months after foreclosure,
whichever is earlier;
15. That Petitioners in this subject mortgage are Natural Persons who are principal mortgagors-debtors and at the
same time registered owners of some properties at the time of the mortgage;
16. That the provisions of Republic Act No. 8791 do not make mention nor exceptions to this situation where the Real
Estate Mortgage is executed by both Juridical and Natural Persons; hence, the need to file this instant case of
Declaratory Relief under Rule 63 of the Revised Rules of Court of the Philippines;
74
PRAYER
WHEREFORE, it is respectfully prayed that judgment in favor of petitioners and against the respondent-PNB;
1. That upon the filing of the above-entitled case, a TEMPORARY RESTRAINING INJUNCTION be issued immediately
ordering a status quo, enjoining the Register of Deeds and defendant-PNB from registering the subject Provisional
Certificate of Sale from consolidating the title of the property covered by Transfer Certificate of Title Nos. T-147820,
T-147821, T-246386, T-24712 and Land Improvement, Etc.
2. That petitioners’ application of the issuance of the Writ of Preliminary Injunctions be considered and granted
within 20 days lifetime period of the TRO.
AFTER TRIAL ON THE MERITS
3. To declare the injunction as final;
4. Ordering the Register of Deeds to refrain from registering the Sheriff’s Certificate of Sale and further from
consolidating the titles of the said properties in its name and offering to sell the same to interested buyers during
the pendency of the above entitled case, while setting the date of hearing on the propriety of the issuance of such
Writ of Preliminary Injunction.
ON THE MAIN CASE
5. To declare the petitioners’ right as principal mortgagors/owner jointly with a juridical person to redeem within a
period of 1 year the properties foreclosed by respondent PNB still protected and covered by Act 3135.
6. To declare the provisions on Foreclosure of Real Estate Mortgage under Republic Act 8791 or General Banking
Laws of 2000 discriminating and therefore unconstitutional.
OTHER RELIEFS AND REMEDIES are likewise prayed for.46
Branch 14 of the Regional Trial Court of Davao City issued a temporary restraining order 47 on April 10, 2002. This
temporary restraining order enjoined the Register of Deeds from registering the Sheriff’s Provisional Certificate of
Sale.48
The temporary restraining order was issued without first hearing the parties to the case. Hence, the temporary
restraining order was recalled by the same trial court in the Order49 dated April 16, 2002.
During the hearing for the issuance of a temporary restraining order in the Petition for Declaratory Relief, Spouses
Limso presented several exhibits, which included: Philippine National Bank’s demand letter dated April 12, 2000;
Philippine National Bank’s letter to the Acting Register of Deeds of Davao City dated February 4, 2002 requesting the
immediate registration of the Sheriff’s Provisional Certificate of Sale; and the Notice of Foreclosure dated September
5, 2000.50
Counsel for Philippine National Bank objected to the purpose of the presentation of the exhibits and argued that since
Spouses Limso were Davao Sunrise’s co-debtors, they "were notified as a matter of formality[.]"51
On May 3, 2002, Branch 14 granted the prayer for the issuance of the writ of preliminary injunction enjoining the
registration of the Sheriff’s Provisional Certificate of Sale.52
Branch 14 reasoned as follows:
This Court finds no merit in the claims advanced by private respondent Bank for the following reasons:
1. That the primary ground why the Court of Appeals dissolved the preliminary injunction granted by Branch 17 of
this Court was because the ground upon which the same was issued was based on a pleading which was not
verified;
2. That Civil Case No. 28,170-2000 and Civil Case No. 29,036-2002 while involving substantially the same parties,
the same do not involved [sic] the same issues as the former involves nullity of unilateral imposition and increases
of interest rates, etc. nullity of foreclosure proceedings, reduction of both loan accounts, reformation or annulment
of contract, reconveyance and damages, whereas the issues raised in the instant petition before this Court is the
 right and duty of the petitioners under the last paragraph of Sec. 47, Republic Act No. 8791 and whether the said
section of said law is applicable to the petitioners considering that the mortgage contract was executed when Act
No. 3135 was the controlling law and was in fact made part of the contract;
3. That the petition, contrary to the claim of private respondent Bank, clearly states a cause of action; and
4. That since petitioners are parties to the mortgage contract they, therefore, have locus standi to file the instant
petition.
If Section 7 of Republic Act 8791 were made to apply to the petitioners, the latter would have a shorter period of three
(3) months to exercise the right of redemption after the registration of the Certificate of Sale, hence, the registration
of the Sheriff’s Provisional Certificate of Sale would cause great and irreparable injury to them as their rights to the
properties sold at public auction would be lost forever if the registration of the same is not enjoined. 53
Spouses Limso posted an injunction bond that was approved by the trial court in the Order dated May 6, 2002. Thus,
the writ of preliminary prohibitory injunction was issued.54
Philippine National Bank moved for reconsideration of the Orders dated May 3, 2002 and May 6, 2002. 55
Around this time, Judge William M. Layague (Judge Layague), Presiding Judge of Branch 14, was on leave. 56 Philippine
National Bank’s Motion for Reconsideration was granted by the Pairing Judge, Judge Jesus V. Quitain (Judge
Quitain),57 and the writ of preliminary prohibitory injunction was dissolved in the Order dated May 23, 2002. 58
On May 30, 2002, Philippine National Bank’s lawyers went to the Register of Deeds of Davao City "to inquire on the
status of the registration of the Sheriff’s Provisional Certificate of Sale."59
Philippine National Bank’s lawyers were informed that the documents they needed "could not be found and that the
person in charge thereof, Deputy Register of Deeds Jorlyn Paralisan, was absent."60
Philippine National Bank contacted Jorlyn Paralisan at her residence. She informed Philippine National Bank that the
documents they were looking for were all inside Atty. Patriarca’s office.61
Subsequently, Atty. Patriarca informed the representatives of Philippine National Bank that the Register of Deeds
"would not honor certified copies of [Land Registration Authority] resolutions even if an official copy of the [Land
Registration Authority] Resolution was already received by that Office through mail."62
On May 31, 2002, Philippine National Bank’s representatives returned to the Register of Deeds of Davao City and
learned that Atty. Patriarca, the Acting Register of Deeds, had not affixed her signature, which was necessary to
complete the registration of the Sheriff’s Certificate of Sale. 63
Subsequently, Judge Layague reinstated the writ of preliminary prohibitory injunction in the Order 64
dated June 24,
2002.
Aggrieved, Philippine National Bank filed before the Court of Appeals a Petition for Certiorari, Prohibition and Mandamus
with Prayer for Temporary Restraining Order and Writ of Preliminary Injunction, both Prohibitory and Mandatory,
docketed as CA G.R. SP No. 71527. The Petition assailed the June 24, 2002 Order of Branch 14 of the Regional Trial
Court, which reinstated the writ of preliminary prohibitory injunction.65
75
On July 3, 2002, Philippine National Bank inspected the titles and found that correction fluid had been applied over
Atty. Patriarca’s signature on the titles.66
Also on July 3, 2002, Philippine National Bank filed before the Regional Trial Court of Davao City a Petition for Issuance
of the Writ of Possession under Act No. 3135, as amended, and Section 47 of Republic Act No. 8791. 67 This was
docketed as Other Case No. 124-2002 and raffled to Branch 15 of the Regional Trial Court of Davao City, presided by
Judge Quitain.68
Davao Sunrise filed a Motion to Expunge and/or Dismiss Petition for Issuance of Writ of Possession dated July 12,
2002.69 In the Motion to Expunge, Davao Sunrise pointed out that Branch 1470 (in the Petition for Declaratory Relief
docketed as Civil Case No. 29,036-2002) issued a writ of preliminary injunction "enjoining the Provincial Sheriff, the
Register of Deeds of Davao City[,] and [Philippine National Bank] from registering the Sheriff’s Provisional Certificate
of Sale and, if registered, enjoining [Philippine National Bank] to refrain from consolidating the title of the said property
in its name and/or offering to sell the same to interested buyers during the pendency of the case."71
On July 18, 2002, Spouses Limso filed a Motion to Intervene72 in Other Case No. 124-2002.73
In the Resolution dated August 13, 2002, the Court of Appeals granted the temporary restraining order prayed for by
Philippine National Bank (in CA G.R. SP No. 71527) enjoining the implementation of Judge Layague’s Orders dated May
3, 2002 and June 24, 2002. These Orders pertained to the writ of preliminary injunction enjoining the registration of
the Sheriff’s Provisional Certificate of Sale.74
Spouses Limso filed a Motion for Reconsideration with Prayers for the Dissolution of Temporary Restraining Order and
to Post Counter Bond.75
The Court of Appeals granted Philippine National Bank’s Petition for Certiorari in the Decision 76 dated December 11,
2002. The dispositive portion of the Decision states:
WHEREFORE, premises considered, the writ prayed for in the herein petition is GRANTED and the assailed Orders of
respondent judge dated May 3 and June 24, 2002 granting the writ of preliminary injunction are SET ASIDE. Civil Case
No. 29,036-2002 is hereby ordered DISMISSED and respondent Register of Deeds of Davao City is hereby ordered to
register petitioner PNB’s Sheriff’s Provisional Certificate of Sale and cause its annotation on TCT Nos. T-147820, T-
147821, T-246386 and T-247012.77
Spouses Limso filed a Motion to Reconsider Decision and To Call Case For Hearing on Oral Argument, which was opposed
by Philippine National Bank.78 Oral arguments were conducted on March 19, 2003.79
On June 10, 2003, the Court of Appeals denied Spouses Limso’s Motion for Reconsideration. 80
Spouses Limso then filed a Petition for Review on Certiorari81 before this court, questioning the Decision in CA G.R. SP
No. 71527, which ordered the Register of Deeds to register the Sheriff’s Provisional Certificate of Sale. This was
docketed as G.R. No. 158622.82
With regard to the Complaint for Reformation or Annulment of Contract with Damages, Branch 17 of the Regional Trial
Court of Davao City promulgated its Decision83 on June 19, 2002.
Branch 17 ruled in favor of Spouses Limso and Davao Sunrise. It found the interest rate provisions in the loan
agreement to be unreasonable and unjust because the imposable interest rates were to be solely determined by
Philippine National Bank. The arbitrary imposition of interest rates also had the effect of increasing the total loan
obligation of Spouses Limso and Davao Sunrise to an amount that would be beyond their capacity to pay. 84
The dispositive portion of the Decision in the Complaint for Reformation or Annulment with Damages states:
WHEREFORE, finding the evidence of plaintiffs corporation through counsel, more than sufficient, to constitute a
preponderance to prove the various unilateral impositions of increased interest rates by defendant bank, such
usurious, unreasonable, arbitrary, unilateral imposition of interest rates, are declared, null and void.
Accordingly, decision is issued in favor of the defendant bank, in a reduced amount based on the following:
1. The amount of One Hundred Twenty Seven Million, One Hundred Fifty Thousand (P127,150,000.00) Pesos,
representing illegal interest rate, the amount of One Hundred Seventy Six Million, Ninety Eight Thousand, Forty
Five and 95/100 (P176,098,045.95) Pesos, representing illegal penalty charges and the amount of One Hundred
Thirty Six Million, Nine Hundred Thousand, Nine Hundred Twenty Eight and 85/100 (P136,900,928.85) Pesos, as
unreasonable 10% Attorney’s fees or in the total amount of Four Hundred Forty Million, One Hundred Forty Eight
Thousand, Nine Hundred Seventy Four and 79/100 (P440,148,974.79) Pesos, are declared null and void, rescending
[sic] and/or altering the loan agreement of parties, on the ground of fraud, collusion, mutual mistake, breach of
trust, misconduct, resulting to gross inadequacy of consideration, in favor of plaintiffs corporation, whose total
reduced and remaining principal loan obligation with defendant bank, shall only be the amount of Eight Hundred
Eighty Two Million, Twelve Thousand, One Hundred Forty Nine and 50/100 (P882,012,149.50) Pesos, as
outstanding remaining loan obligation of plaintiffs corporation, with defendant bank, to be deducted from the total
payments so far paid by plaintiffs corporation with defendant bank as already stated in this decision.
2. That thereafter, the above-amount as ordered reduced, shall earn an interest of 12% per annum, the lawful rate
of interest that should legitimately be imposed by defendant bank to the outstanding remaining reduced principal
loan obligation of plaintiffs corporation.
3. Notwithstanding, defendant bank, is entitled to a reduced Attorney’s fees of Five Hundred Thousand
(P500,000.00) Pesos, as a reasonable Attorney’s fees, subject to subsequent pronouncement as to the real status
of defendant bank, on whether or not, said institution is now a private agency or still a government instrumentality
in its capacity to be entitled or not of the said Attorney’s fees.
4. The prayer of defendant bank for award of moral damages and exemplary damages, are denied, for lack of
factual and legal basis.
Philippine National Bank moved for reconsideration of the Decision, while Spouses Limso and Davao Sunrise filed a
Motion for partial clarification of the Decision.86
Branch 17 of the Regional Trial Court of Davao City subsequently issued the Order 87 dated August 13, 2002 clarifying
the correct amount of Spouses Limso and Davao Sunrise’s obligation, thus:
WHEREFORE, finding the motion for reconsideration of defendant bank through counsel, to the decision of the court,
grossly bereft of merit, merely a reiteration and rehash of the arguments already set forth during the hearing,
including therein matters not proved during the trial on the merits, and considered admitted, is denied.
To provide a clarification of the decision of this court, relative to plaintiffs motion for partial clarification with comment
of defendant bank through counsel, the correct remaining balance of plaintiffs account with defendant bank, pursuant
to the decision of this court, in pages 17 and 18, dated June 19, 2002, is Two Hundred Five Million Eighty Four
Thousand Six Hundred Eighty Two Pesos & 61/100 (P205,084,682.61), as above-clarified.
Philippine National Bank appealed the Decision and Order in the Complaint for Reconstruction or Annulment with
Damages by filing a Notice of Appeal on August 16, 2002.89 The Notice of Appeal was approved by the trial court in the
Order dated September 25, 2002.90 The appeal was docketed as CA-G.R. CV No. 79732.91
76
On August 20, 2002,92 Spouses Limso and Davao Sunrise filed, in Other Case No. 124-2002 (Petition for Issuance of
Writ of Possession), a Motion to Inhibit the Presiding Judge (referring to Judge Quitain, before whom the Petition for
Issuance of Writ of Possession was pending) because his wife, Gladys Isla Quitain, was a long-time Philippine National
Bank employee who had retired.93 Spouses Limso and Davao Sunrise also heard rumors that Gladys Isla Quitain had
been serving as consultant for Philippine National Bank even after retirement.94 Davao Sunrise also filed a Motion to
Expunge and/or Dismiss Petition and argued that the person who signed for Philippine National Bank was not authorized
because no Board Resolution was attached to the Verification and Certification against Forum Shopping.
In the Order95 dated March 21, 2003, Judge Quitain denied three motions:
(1) The Motion to Intervene filed by Spouses Robert Alan Limso and Nancy Limso;
(2) The Motion to Expunge and/or Dismiss Petition for the Issuance of Writ of Possession filed by Davao Sunrise
Investment and Development Corporation; and
(3) The Motion for Voluntary Inhibition filed by Davao Sunrise Investment and Development Corporation. 96
Judge Quitain denied the Motion to Inhibit on the ground that the allegations against him were mere suspicions and
conjectures.97 The Motion to Intervene was denied on the ground that Spouses Limso have no interest in the case, not
being the owners of the property.98
The Motion to Expunge and/or Dismiss filed by Davao Sunrise was also denied for lack of merit. Judge Quitain ruled
that "PNB Vice President Leopoldo is clearly clothed with authority to represent and sign in behalf of the petitioner
[referring to Philippine National Bank] as shown by the Verification and Certification of the said petition as well as the
Secretary’s Certificate."99
Spouses Limso and Davao Sunrise filed a Motion for Reconsideration 100 of the Order dated March 21, 2003. Judge
Quitain denied the Motion for Reconsideration in an Order dated September 1, 2003, only with regard to the Motion to
Intervene and Motion for Voluntary Inhibition. The Motion to Expunge and/or Dismiss was not mentioned in the
September 1, 2003 Order.101
Spouses Limso and Davao Sunrise questioned the denial of the Motion for Inhibition by filing a Petition for Certiorari
before the Court of Appeals on September 26, 2003. This was docketed as CA G.R. SP No. 79500. 102 Spouses Limso
and Davao Sunrise subsequently filed a Supplemental Petition for Certiorari before the Court of Appeals on October 3,
2003.103
In the meantime, Other Case No. 124-2002 (Petition for Issuance of Writ of Possession) was set for an ex-parte hearing
on October 10, 2003.104
However, on October 8, 2003, the Court of Appeals granted the prayer for the issuance of a temporary restraining
order in CA G.R. SP No. 79500 "enjoining public respondent Judge Quitain from proceeding with Other Case No. 124-
2002 for a period of sixty (60) days from receipt by respondents thereof."105
The temporary restraining order was effective from October 10, 2003 to December 9, 2003.106
On December 12, 2003, Judge Quitain issued the Order allowing Philippine National Bank to present evidence ex-parte
on December 18, 2003 despite the pendency of other incidents to be resolved. 107
Spouses Limso and Davao Sunrise filed an Urgent Motion for Cancellation of the December 18, 2003 hearing due to
the pendency of CA G.R. SP No. 79500.108
Judge Quitain reset the hearing for Other Case No. 124-2002 to January 23, 2004. The hearing was subsequently reset
to January 30, 2004. In the January 30, 2004 hearing, Judge Quitain heard the arguments of parties regarding the
Urgent Motion to Cancel Hearing.109
In the Order dated March 12, 2004, Judge Quitain "resolved the pending Urgent Motion to Cancel Hearing and [Davao
Sunrise’s] Motion to Re-schedule Newly Scheduled Hearing Date."110
The March 12, 2004 Order also stated that "the Spouses Limso have no right to intervene because they are no longer
owners of the subject foreclosed property."111
Spouses Limso treated the March 12, 2004 Order as a denial of their Motion for Reconsideration regarding their Motion
to Intervene. Thus, they, together with Davao Sunrise, filed a Petition for Certiorari before the Court of Appeals, which
was docketed as CA G.R. SP No. 84279.112
CA G.R. SP No. 84279 was denied by the Court of Appeals in the Decision113 dated September 20, 2004.
Spouses Limso and Davao Sunrise filed a Motion for Reconsideration 114
dated September 13, 2004, which was denied
in the Resolution115 dated July 8, 2005.
Spouses Limso and Davao Sunrise then filed a Petition for Review on Certiorari dated July 26, 2005 before this court.
This was docketed as G.R. No. 168947.116
Despite the pendency of Spouses Limso and Davao Sunrise’s Motion for Reconsideration of the Order denying Davao
Sunrise’s Motion to Expunge and/or Dismiss, Philippine National Bank filed a Motion for Reception of Evidence and/or
Resume Hearing dated March 30, 2004 in Other Case No. 124-2002.117
Judge Quitain granted the Motion "and set the hearing for reception of petitioner’s evidence on 06 April 2004 at 2:00
p.m."118
Spouses Limso and Davao Sunrise filed an Extremely Urgent Manifestation and Motion dated April 5, 2004. They prayed
for the cancellation of the hearing for the reason that the March 12, 2004 Order was not yet final and that Davao
Sunrise had a pending Motion for Reconsideration of the Order denying its Motion to Expunge and/or Dismiss. 119
Judge Quitain cancelled the April 6, 2004 hearing due to the Manifestation and Motion filed by Spouses Limso and
Davao Sunrise.120
Spouses Limso filed a Motion for Reconsideration of the March 12, 2004 Order because it addressed issues other than
those raised in the Motion for Intervention.121
On April 20, 2004, Judge Quitain issued the Order and reset the case for hearing to May 7, 2004, even though the
Motion for Reconsideration of the Order denying the Motion to Expunge and/or Dismiss had not been acted upon. 122
During the May 7, 2004 hearing, counsel for Spouses Limso and Davao Sunrise pointed out to Judge Quitain the
pendency of the Motion for Reconsideration of the Order denying the Motion to Expunge and/or Dismiss.123
Judge Quitain issued the Order dated July 5, 2004 denying Spouses Limso and Davao Sunrise’s Motion for
Reconsideration to the March 12, 2004 Order (referring to the denial of Spouses Limso’s Motion to Intervene).
77
Judge Quitain also set hearing dates on August 4 and 5, 2004 for the reception of Philippine National Bank’s evidence.
Once again, the hearings were scheduled even though the Motion to Expunge and/or Dismiss had yet to be resolved. 124
Davao Sunrise then filed a Motion to Transfer Case or in the Alternative to Dismiss the Same on July 30, 2004. Davao
Sunrise reiterated the arguments in its Motion to Expunge and/or Dismiss. 125
Subsequently, Spouses Limso and Davao Sunrise filed an Extremely Urgent Manifestation and Motion dated August 3,
2004 asking that the hearings scheduled for August 4 and 5, 2004 be cancelled, considering that Davao Sunrise’s
Motion to Dismiss/Expunge the Petition was still unresolved.126
On August 4, 2004, Judge Quitain took cognizance of the Extremely Urgent Manifestation and Motion dated August 3,
2004 and a Very Urgent Motion for Intervention filed by a third party. Thus, Judge Quitain cancelled the hearings
scheduled on August 4 and 5, 2004, reset the hearing to August 11, 2004, and "impressed upon the parties that he
would be able to resolve all pending incidents by that time."127
Spouses Limso and Davao Sunrise alleged that the pending incidents were hastily acted upon by Judge Quitain, as
follows:
[O]n 11 August 2004, at around 11:45 a.m., petitioners’ counsel was furnished a copy of public
respondent’s Order allegedly dated 06 August 2004 which declared as submitted for resolution the following incidents,
to wit: (a) petitioner DSIDC’s Motion to Transfer the Case to Branch 17; (b) Petitioner DSIDC’s Motion to Postpone
Hearing; (c) Motion for Intervention filed by a certain Karlan Lou Ong; (d) petitioners’ (DSIDC and Spouses
Limso) Extremely Urgent Manifestation and Motion; and (e) Petitioner DSIDC’s Manifestation.
. . . And then, at around 2:10 p.m. of the same day, 11 August 2004, when petitioners’ counsel was already in court
for the said hearing, he was furnished by a staff of public respondent Judge Quitain a copy of an Order dated 11 August
2004 and consisting of two (2) pages, the dispositive portion of which reads as follows:
"WHEREFOREM(sic), the Court hereby resolves the following motions: 1) DSIDC’s motion to transfer case to Branch
17 or dismiss the same is denied for lack of merit. 2) DSIDC’s (sic) motion to postpone the hearing is denied for lack
of merit. 3) The motion of Karla Ong to intervene is denied for lack of merit. 4) The August 5 manifestation of DSIDC
is noted."128 (Emphasis in the original)
Spouses Limso and Davao Sunrise also claimed that the Order dated August 11, 2004 was done hastily so that Philippine
National Bank would be able to present its evidence without objection.129
Spouses Limso and Davao Sunrise alleged that the August 11, 2004 Order contained factual findings not supported by
the record. When counsel for Spouses Limso and Davao Sunrise pointed out the errors, Judge Quitain acknowledged
the mistake and reset the August 11, 2004 hearing to August 27, 2004. 130
Because of Judge Quitain’s actions, Spouses Limso and Davao Sunrise filed a Motion for Compulsory Disqualification
on the ground that Judge Quitain was biased in Philippine National Bank’s favor. 131
In the Order132 dated March 10, 2005, Judge Quitain denied the Motion for Compulsory Disqualification.
Spouses Limso and Davao Sunrise moved for reconsideration of the March 10, 2005 Order, while Philippine National
Bank filed an Opposition to the Motion for Reconsideration.133
The August 11, 2004 Order also denied Davao Sunrise’s Motion to Transfer Case to Branch 17 or Dismiss the Same.
Since the Motion to Transfer is a rehash of Davao Sunrise’s Motion to Expunge and/or Dismiss Petition, the denial of
the Motion to Transfer is tantamount to the denial of Davao Sunrise’s Motion to Expunge and/or Dismiss. 134 The August
11, 2004 Order did not specifically state that Spouses Limso and Davao Sunrise’s Motion for Reconsideration dated
March 28, 2003 was denied, but since the issues raised in the Motion to Reconsideration were also raised in the Motion
to Expunge, the August 11, 2004 Order also effectively denied the Motion for Reconsideration. 135
Thus, Spouses Limso and Davao Sunrise filed a Petition136 for Certiorari before the Court of Appeals, which was
docketed as CA G.R. SP No. 85847.137 Spouses Limso and Davao Sunrise assailed the March 21, 2003 Order denying
Davao Sunrise’s Motion to Expunge and/or Dismiss Petition for Issuance of Writ of Possession, as well as the August
11, 2004 Order denying Davao Sunrise’s Motion to Dismiss.138
On September 1, 2004, the Court of Appeals promulgated its Decision 139 in CA G.R. No. 79500140 denying Spouses
Limso and Davao Sunrise’s Petition, which assailed Judge Quitain’s denial of their Motion to Inhibit.141 The Court of
Appeals ruled that Judge Quitain’s reversal of Judge Layague’s Orders "may constitute an error of judgment . . . but it
is not necessarily an evidence of bias and partiality."142
Spouses Limso and Davao Sunrise moved for reconsideration on September 23, 2004. The Motion was denied in the
Resolution143 dated August 11, 2005.144
While the cases between Spouses Limso, Davao Sunrise, and Philippine National Bank were pending, Philippine National
Bank, through counsel, filed administrative145 and criminal complaints146 against Atty. Patriarca.
The administrative case against Atty. Patriarca was docketed as Administrative Case No. 02-13.147
In the Resolution148 dated January 12, 2005, the Land Registration Authority found Atty. Patriarca guilty of grave
misconduct and dismissed her from the service.149 Included in the Resolution are the following pronouncements:
The registration of these documents became complete when respondent affixed her signature below these
annotations. Whatever information belatedly gathered thereafter relative to the circumstances as to the registrability
of these documents, respondent cannot unilaterally take judicial notice thereof and proceed to lift at her whims and
caprices what has already been officially in force and effective, by erasing thereon her signature. With her years of
experience in the Registry, not to mention her being a lawyer, respondent should have taken the appropriate steps
in filing a query to this Authority regarding the matter or should have consulted Section 117 of PD 1529 in relation
to Section 12 of Rule 43. The deplorable act of Respondent was fraught with partiality to favor the DSIDC and Sps.
Limso.150
Atty. Asteria E. Cruzabra (Atty. Cruzabra) replaced Atty. Patriarca as Register of Deeds of Davao City. 151 Philippine
National Bank wrote a letter to Atty. Cruzabra, arguing "that the Sheriff’s Provisional Certificate of Sale was already
validly registered[,]"152 and the unauthorized application of correction fluid 153 to cover the original signature of the
Acting Register of Deeds "did not deprive the Bank of its rights under the registered documents."154
Meanwhile, on February 10, 2005, as CA-G.R. CV No. 79732, which was an appeal from Civil Case No. 28,170-2000
(Petition for Reformation and Annulment of Contract with Damages), was still pending, Philippine National Bank filed
the following applications before the Court of Appeals Nineteenth Division:155
a. Application to Hold Davao Sunrise Investment and Development Corporation, the Spouses Robert Alan L. Limso
and Nancy Lee Limso and Wellington Insurance Company, Inc. Jointly and Severally liable for Damages on the
Injunction Bond; and
b. Application for the Appointment of PNB as Receiver[.]156
78
Spouses Limso and Davao Sunrise filed their opposition to Philippine National Bank’s application on March 29,
2005.157 Philippine National Bank filed its Reply to the Opposition on May 5, 2005.158
On March 2, 2006, the Court of Appeals denied Philippine National Bank’s applications, reasoning that:
It is a settled rule that the procedure for claiming damages on account of an injunction wrongfully issued shall be the
same as that prescribed in Section 20 of Rule 57 of the Revised Rules of Court. Section 20 provides:
Sec. 20. Claim for damages on account of improper, irregular or excessive attachment. - An application for damages
on account of improper, irregular or excessive attachment must be filed before the trial or before appeal is perfected
or before the judgment becomes executory, with due notice to the attaching obligee or his surety or sureties,
setting forth the facts showing his right to damages and the amount thereof. Such damages may be awarded only
after proper hearing and shall be included in the judgment on the main case.
If the judgment of the appellate court be favorable to the party against whom the attachment was issued, he must
claim damages sustained during the pendency of the appeal by filing an application in the appellate court with notice
to the party in whose favor the attachment was issued or his surety or sureties, before the judgment of the appellate
court becomes executory. The appellate court may allow the application to be heard and decided by the trial court.
Nothing herein contained shall prevent the party against whom the attachment was issued from recovering in the
same action the damages awarded to him from any property of the attaching obligee not exempt from execution
should the bond or deposit given by the latter be insufficient or fail to fully satisfy the award.
Records show that when this Court annulled the RTC’s order of injunction, Davao Sunrise thereafter elevated the
matter to the Supreme Court. On July 24, 2002, the Supreme Court denied its petition for having been filed out of
time and an Entry of Judgment was issued on Sept. 11, 2002.
PNB’s instant application however was filed only on February 17, 2005 and/or in the course of its appeal on the main
case – about two (2) years and five (5) months after the judgment annulling the injunction order attained finality.
Clearly, despite that it already obtained a favorable judgment on the injunction matter, PNB failed to file (before the
court a quo) an application for damages against the bond before judgment was rendered in the main case by the
court a quo. Thus, even for this reason alone, Davao Sunrise and its bondsman are relieved of further liability
thereunder.159 (Citations omitted)
The Court of Appeals also denied Philippine National Bank’s application to be appointed as receiver for failure to fulfill
the requirements to be appointed as receiver and for failure to prove the grounds for receivership.160 It discussed that
to appoint Philippine National Bank as receiver would violate the rule that "neither party to a litigation should be
appointed as receiver without the consent of the other because a receiver should be a person indifferent to the parties
and should be impartial and disinterested."161 The Court of Appeals noted that Philippine National Bank was not an
impartial and disinterested party, and Davao Sunrise objected to Philippine National Bank’s appointment as receiver. 162
In addition, Rule 59, Section 1(a)163 of the 1997 Rules of Court requires that the "property or fund involved is in danger
of being lost, removed, or materially injured." The Court of Appeals found that the properties involved were "not in
danger of being lost, removed[,] or materially injured."164 Further, Philippine National Bank’s application was premature
since the loan agreement was still pending appeal and "a receiver should not be appointed to deprive a party who is in
possession of the property in litigation."165
The dispositive portion of the Court of Appeals Resolution166 states:
 WHEREFORE, above premises considered, the Philippine National Bank’s Application to Hold Davao Sunrise
Investment and Development Corporation, the Spouses Robert Alan L. Limso and Nancy Lee Limso and Wellington
Insurance Company, Inc. Jointly and Severally Liable for Damages on the Injunction Bond and its Application for the
Appointment of PNB as Receiver are hereby both DENIED. And, for the reasons above set forth, the Plaintiff-Appellees’
Motion to Dismiss is likewise DENIED.
With the filing of the Appellants’ and the Appellees’ respective Brief(s), this case is considered SUBMITTED for Decision
and ORDERED re-raffled to another justice for study and report.
Philippine National Bank filed a Motion for Reconsideration on March 28, 2006, which was denied in the
Resolution168 dated May 26, 2006.169
Thus, on July 21, 2006, Philippine National Bank filed before this court a Petition for Review170 on Certiorari questioning
the Court of Appeals’ denial of its applications.171 This was docketed as G.R. No. 173194.172
On February 16, 2007, Philippine National Bank’s Ex-Parte Petition for Issuance of a Writ of Possession docketed as
Other Case No. 124-2002 was dismissed173 based on the following grounds:
(1) For purposes of the issuance of the writ of possession, Petitioner should complete the entire process in
extrajudicial foreclosure . . .
(2) The records disclose the [sic] contrary to petitioner’s claim, the Certificate of Sale covering the subject properties
has not been registered with the Registry of Deeds of Davao City as the Court finds no annotation thereof. As such,
the sale is not considered perfected to entitled petitioner to the writ of possession as a matter of rights [sic]. 174
Philippine National Bank filed a Motion for Reconsideration with Motion for Evidentiary Hearing. 175
Acting on the Motion for Reconsideration, the trial court required the Registry of Deeds to comment on the matter.176
The trial court eventually denied the Motion for Reconsideration.177
Philippine National Bank appealed the trial court Decision dismissing the Petition for Issuance of a Writ of Possession
by filing a Rule 41 Petition before the Court of Appeals, which was docketed as CA-G.R. CV No. 01464-MIN.178
Meanwhile, when CA-G.R. CV No. 79732 was re-raffled,179 it was redocketed as CA-G.R. CV No. 79732-MIN.180
In CA-G.R. CV No. 79732-MIN, the Court of Appeals resolved the issue of "whether or not there has been mutuality
between the parties, based on their essential equality, on the subject imposition of interest rates on plaintiffs-appellees’
loan obligation, i.e., the original loan and the restructured loan."181
On August 13, 2009, the Court of Appeals promulgated its Decision182 in CA-G.R. CV No. 79732-MIN. It held that there
was no mutuality between the parties because the interest rates were unilaterally determined and imposed by Philippine
National Bank.183
The Court of Appeals further explained that the contracts between Spouses Limso and Davao Sunrise, on one hand,
and Philippine National Bank, on the other, did not specify the applicable interest rates. The contracts merely stated
the interest rate to be "at a rate per annum that is determined by the bank[;]" 184 "at the rate that is determined by
the Bank to be the Bank’s prime rate in effect at the Date of Drawdown[;]"185 and "at the rate per annum to be set by
the Bank. The interest rate shall be reset by the Bank every month."186 In addition, the interest rate would depend on
the prime rate, which was "to be determined by the bank[.]"187 It was also discussed that:
79
But it even gets worse. After appellant bank had unilaterally determined the imposable interest on plaintiffs-appellees
loans and after the latter had been notified thereof, appellant bank unilaterally increased the interest rates. Further
aggravating the matter, appellant bank did not increase the interest rate only once but on numerous occasions.
Appellant bank unilaterally and arbitrarily increased the already arbitrarily imposed interest rate within intervals of
only seven (7) days and/or one (1) month.
The interests imposed under the Conversion, Restructuring and Extension Agreement, is not a valid imposition.
DSIDC and Spouses Limso have no choice except to assent to the conditions therein as they are heavily indebted to
PNB. In fact, the possibility of the foreclosure of their mortgage securities is right in their doorsteps. Thus it cannot
be considered "contracts" between the parties, as the borrower’s participation thereat has been reduced to an
unreasonable alternative that is to "take it or leave it." It has been used by PNB to raise interest rates to levels which
have enslaved appellees or have led to a hemorrhaging of the latter’s assets. Hence, for being an exploitation of the
weaker party, the borrower, the alleged letter-contracts should also be struck down for being violative of the principle
of mutuality of contracts under Article 1308.188 (Emphasis in the original)
Thus, the Court of Appeals nullified the interest rates imposed by Philippine National Bank:
We reiterate that since the unilateral imposition of rates of interest by appellant bank is not only violative of the
principle of mutuality of contracts, but also were found to be unconscionable, iniquitous and unreasonable, it is as if
there was no express contract thereon. Thus, the interest provisions on the (a) revolving credit line in the amount of
three hundred (300) million pesos, (b) seven-year long term loan in the amount of four hundred (400) million pesos;
and (c) Conversions, Restructuring and Extension Agreement, Real Estate Mortgage, promissory notes, and all other
loan documents executed contemporaneous with or subsequent to the execution of the said agreements are hereby
declared null and void.
Such being the case, We apply the ruling of the Supreme Court in the case of United Coconut Planters Bank vs. Spouses
Samuel and Odette Beluso which stated:
"We see, however, sufficient basis to impose a 12% legal interest in favor of petitioner in the case at bar, as what
we have voided is merely the stipulated rate of interest and not the stipulation that the loan shall earn
interest."189 (Citation omitted)
As to the trial court’s reduction of the penalty charges and attorney’s fees, the Court of Appeals affirmed the trial
court’s ruling and stated that Article 1229190 of the Civil Code allows for the reduction of penalty charges that are
unconscionable.191 The Court of Appeals discussed that:
The penalties imposed by PNB are clearly unconscionable. Any doubt as to this fact can be removed by simply glancing
at the penalties charged by defendant-appellant which . . . already amounted to an incredibly huge amount of
P176,098,045.94 despite payments that already exceeded the amount of the loan as of 1998.
With respect to attorney’s fees, the Supreme Court had consistently and invariably ruled that even with the presence
of an agreement between the parties, the court may nevertheless reduce attorney’s fees though fixed in the contract
when the amount thereof appears to be unconscionable or unreasonable. Again, the fact that the attorney’s fees
imposed by PNB are unconscionable and unreasonable can clearly be seen. The attorney’s fees imposed similarly
points to an incredibly huge sum of P136,900,928.85 as of October 30, 2000. Therefore, its reduction in the assailed
decision is well-grounded.192 (Citation omitted)
The dispositive portion of the Court of Appeals Decision states:
WHEREFORE, the assailed Decision dated June 19, 2002 and Order dated August 13, 2002 of the Regional Trial
Court of Davao City, Branch 17 in Civil Case No. 28,170-2000 declaring the unilateral imposition of interest rates by
defendant-appellant PNB as null and void appealed from are AFFIRMED with the MODIFICATION that the
obligation of plaintiffs-appellees arising from the Loan and Revolving Credit Line and subsequent Conversion,
 Restructuring and Extension Agreement as Loan I and Loan II shall earn interest at the legal rate of twelve percent G.R. No. 158622 was filed on July 1, 2003;214 G.R. No. 169441 was filed on September 14, 2005;215 G.R. No. 172958
(12%) per annum computed from September 1, 1993, until fully paid and satisfied. was filed on June 26, 2006;216 G.R. No. 173194 was filed on July 21, 2006;217 G.R. No. 196958 was filed on June 17,
2011;218 G.R. No. 197120 was filed on June 22, 2011;219 and G.R. No. 205463 was filed on March 15, 2013.220
Philippine National Bank moved for reconsideration on September 3, 2009,194 arguing that the interest rates were
"mutually agreed upon[;]"195 that Spouses Limso and Davao Sunrise "never questioned the . . . interest rates[;]"196 and
Docket Original Case Assailed Order/Decision
that they "acknowledged the total amount of their debt (inclusive of loan principal and accrued interest) to [Philippine
Number
National Bank] in the Conversion, Restructuring and Extension Agreement which restructured their obligation to
[Philippine National Bank] in the amount of P1.067 Billion[.]"197 G.R. No. 158622 Petition for Declaratory Relief with Prayer for Court of Appeals Decision dated December 11,
the Issuance of Preliminary Injunction and 2002 dismissing the Petition for Certiorari filed
Spouses Limso and Davao Sunrise moved for partial reconsideration on September 9, 2009, 198 pointing out that their Application for Temporary Restraining by Philippine National Bank. The Petition for
obligation to Philippine National Bank was only ₱205,084,682.61, as stated in the trial court’s Order dated August 13, Order221 Certiorari questioned the issuance of a writ of
2002 in Civil Case No. 28,170-2000.199 preliminary injunction in favor of Spouses
Limso and Davao Sunrise.222

Both Motions were denied by the Court of Appeals in the Resolution200 dated May 18, 2011. G.R. No. 169441 Ex-Parte Petition223 for Issuance of Writ of Court of Appeals Decision dated September 1,
Possession under Act No. 3135 filed by 2004 and Resolution dated August 11,
Philippine National Bank, praying that it be 2005.224 Spouses Limso and Davao Sunrise
The Court of Appeals held that Philippine National Bank’s Motion for Reconsideration raised issues that were a mere
granted possession over four (4) parcels of filed a Motion to Inhibit Judge Quitain, which
rehash of the issues already ruled upon.201
land owned by Davao Sunrise was denied by Judge Quitain. Thus, Spouses
Limso and Davao Sunrise questioned the
With regard to Spouses Limso and Davao Sunrise’s Motion for Partial Reconsideration, the Court of Appeals ruled that: denial of their Motion before the Court of
Since the appellees did not appeal from the decision of the lower court, they are not entitled to any award of Appeals.225
affirmative relief. It is well settled that an appellee who has not himself appealed cannot obtain from the appellate
court any affirmative relief other than those granted in the decision of the court below. The appellee can only advance G.R. No. 172958 Ex-Parte Petition226 for Issuance of the Writ of Court of Appeals Decision227 dated September
any argument that he may deem necessary to defeat the appellant’s claim or to uphold the decision that is being Possession under Act No. 3135 filed by 1, 2005 and Resolution228 dated May 26,
disputed. . . . Thus, the lower court’s finding that the appellees have an unpaid obligation with PNB, and not the other Philippine National Bank, praying that it be 2006. The Petition for Certiorari and
way around, should stand. It bears stressing that appellees even acknowledged their outstanding indebtedness with granted possession over four (4) parcels of Prohibition filed by Spouses Limso and Davao
the PNB when they filed their "Urgent Motion for Execution Pending Appeal" of the August 13, 2002 Order of the land owned by Davao Sunrise Sunrise assailed two Orders of Judge Quitain,
lower court decreeing that appellees’ remaining obligation with PNB is P205,084,682.61. They cannot now claim that which denied their Motion to Expunge and/or
PNB is the one indebted to them in the amount of P15,915,588.89.202 Dismiss Petition for Issuance of Writ of
Possession.229

Philippine National Bank filed a Petition for Review on Certiorari203 assailing the Decision in CA-G.R. CV No. 79732-MIN. G.R. No. 173194 Petition for Reformation or Annulment of Court of Appeals Resolution231 dated March 2,
Philippine National Bank argues that there was mutuality of contracts between the parties, and that the interest rates Contract with Damages filed by Spouses Limso 2006, which denied Philippine National Bank’s
imposed were valid in view of the escalation clauses in their contract.204 Philippine National Bank’s Petition for Review and Davao Sunrise230 (1) Application to Hold [Spouses Limso and
was docketed as G.R. No. 196958.205 Davao Sunrise] and the Surety Bond Company
Jointly and Severally Liable for Damages on
Spouses Limso and Davao Sunrise also filed a Petition for Review206 on Certiorari questioning the ruling of the Court of the Injunction Bond, and (2) Application for
Appeals in CA-G.R. CV No. 79732-MIN that their outstanding obligation was ₱803,185,411.11.207 Spouses Limso and the Appointment of [Philippine National Bank]
Davao Sunrise argue that they "made overpayments in the amount of P15,915,588.89."208 This was docketed as G.R. as Receiver. Also assailed was the Court of
No. 197120.209 Appeals Resolution232 dated May 26, 2006,
which denied the Motion for Reconsideration
filed by Philippine National Bank.
On January 21, 2013, the Court of Appeals dismissed Philippine National Bank’s appeal docketed as CA-G.R. CV No.
01464-MIN (referring to the Petition for the Issuance of a Writ of Possession) on the ground that Philippine National G.R. No. 196958 Petition for Reformation or Annulment of Court of Appeals Decision234 dated August 13,
Bank availed itself of the wrong remedy.210 What the Philippine National Bank should have filed was a "petition for Contract with Damages filed by Davao Sunrise 2009 and Court of Appeals Resolution235 dated
review under Rule 45 and not an appeal under Rule 41[.]"211 and Spouses Limso233 May 18, 2011 docketed as CA-G.R. CV No.
79732-Min. The decision dated August 13,
On March 15, 2013, the Philippine National Bank filed a Petition for Review on Certiorari212 before this court, assailing 2009 affirmed with modification the decision
the dismissal of its appeal before the Court of Appeals and praying that the Decision of the trial court—that the Sheriff’s of the trial court in Civil Case No. 28,170-
Provisional Certificate of Sale was not signed by the Register of Deeds and was not registered—be reversed and set 2000.236 The Resolution dated May 18, 2011
aside. The Petition was docketed as G.R. No. 205463.213 in CA-G.R. CV No. 79732-Min denied the

80
 premises, there is no need for this Honorable Court to rule on the propriety of the dismissal of the said action
Motion for Reconsideration filed by Philippine
for Declaratory Relief as the loan agreements --- from which the entire case stemmed --- had already been
National Bank and also denied the Motion for
declared NULL AND VOID.257 (Emphasis in the original)
Partial Reconsideration filed by Spouses Limso
and Davao Sunrise.237 The Rule 41 appeal
was filed by Philippine National Bank.238 In the Resolution258 dated March 12, 2014, this court granted the Motion to Withdraw Petitions with regard to G.R.
Nos. 172958 and 158622. The prayer for the withdrawal of G.R. No. 169441 was noted without action since G.R. No.
G.R. No. 197120 Petition239 for Reformation or Annulment of Court of Appeals Decision240 dated August 13, 169441 was deemed closed and terminated in this court’s Resolution dated October 16, 2006.259
Contract with Damages filed by Spouses Limso 2009 and Court of Appeals Resolution241 dated
and Davao Sunrise May 18, 2011. Spouses Limso and Davao
Sunrise assailed the portion of the Court of On April 2, 2014, Spouses Limso and Davao Sunrise filed an "Omnibus Motion for Leave [1] To Intervene; [2] To File/
Appeals Decision stating that their Admit Herein Attached Comment-in-Intervention; and [3] To Consolidate Cases"260 in G.R. No. 205463.
outstanding obligation was
₱803,185,411.11.242 Spouses Limso and Davao Sunrise argue that they were allowed to participate in Other Case No. 124-2002, and that
Philippine National Bank was in bad faith when it did not furnish Nancy Limso and Davao Sunrise copies of the Petition
G.R. No. 205463 Ex-Parte Petition for Issuance of the Writ of Court of Appeals Decision 244
dated January
for Review it had filed.261
Possession under Act No. 3135 filed by 21, 2013 dismissing the appeal under Rule 41
Philippine National Bank, praying that it be filed by Philippine National Bank for being the
granted possession over four parcels of land wrong remedy. In the Resolution262 dated April 2, 2014, this court gave due course to the Petition and required the parties to submit
owned by Davao Sunrise243 their memoranda.

In the Manifestation and Motion245 dated May 26, 2006, Davao Sunrise prayed that it be allowed to withdraw G.R. No.
169441 since the issues in the Petition had become moot and academic.
In the Resolution246 dated August 7, 2006, this court consolidated G.R. Nos. 172958, 173194, and 169441, with G.R.
No. 158622 as the lowest-numbered case.
Davao Sunrise’s Manifestation and Motion dated May 26, 2006, which prayed that it be allowed to withdraw G.R. No.
169441, was granted in the Resolution247 dated October 16, 2006. Thus, G.R. No. 169441 was deemed closed and
terminated as of October 16, 2006.248
In the Resolution249 dated March 7, 2007 in G.R. No. 173194, this court required respondents Spouses Limso and
Davao Sunrise to file their comment.
In the Resolution250 dated July 4, 2011, G.R. No. 197120 was consolidated with G.R. No. 196958.
On May 17, 2012, counsel for Spouses Limso and Davao Sunrise notified this court of the death of Robert Alan L.
Limso.251
On October 9, 2013, Spouses Limso and Davao Sunrise filed a Motion to Withdraw Petitions in G.R. Nos. 172958,
169441 and 158622.252 Davao Sunrise and Spouses Limso, through counsel, explained that G.R. No. 169441 had been
mooted by Judge Quitain’s voluntary inhibition from hearing and deciding Other Case No. 124-2002.253
After Judge Quitain had inhibited, Other Case No. 124-2002 was re-raffled to Branch 16 of the Regional Trial Court of
Davao City.254 Other Case No. 124-2002 was dismissed in the Order255 dated February 16, 2007. Since Other Case No.
124-2002 was dismissed, G.R. No. 172958 was mooted as well.256
With regard to G.R. No. 158622, counsel for Spouses Limso and Davao Sunrise explained:
It is clear, however, that the ruling of the Regional Trial Court of Davao City in Civil Case No. 28,170-2000 and the
Court of Appeals in CA G.R. No. 79732 already rendered Civil Case No. 29,036-2002 moot and academic. Under the
On April 15, 2014, Spouses Limso and Davao Sunrise filed a Motion to Dismiss the Petition in G.R. No. 173194 on the
ground that the issues raised by Philippine National Bank are moot and academic. Spouses Limso and Davao Sunrise
also reiterated that Philippine National Bank availed of the wrong remedy. 263
In the Resolution264 dated July 9, 2014, this court recommended the consolidation of G.R. No. 205463 with G.R. Nos.
158622, 169441, 172958, 173194, 196958, and 197120.
In the Resolution265 dated October 13, 2014, this court noted and granted the Omnibus Motion for Leave to Intervene
filed by counsel for Nancy Limso and Davao Sunrise. 266 This court also noted the memoranda filed by counsel for
Philippine National Bank, the Office of the Solicitor General, and counsel for Spouses Limso and Davao Sunrise.267
The remaining issues for resolution are those raised in G.R. Nos. 173194, 196958, 197120, and 205463, which are:
First, whether the Philippine National Bank’s Petition for Review on Certiorari in G.R. No. 173194 is the wrong remedy
to assail the March 2, 2006 Court of Appeals Resolution,268 which denied Philippine National Bank’s (1) Application to
Hold [Spouses Limso and Davao Sunrise] and the Surety Bond Company Jointly and Severally Liable for Damages on
the Injunction Bond, and (2) Application for the Appointment of [Philippine National Bank] as Receiver;
Second, whether Philippine National Bank committed forum shopping when it filed an ex-parte Petition for the
Issuance of a Writ of Possession and an Application to be Appointed as Receiver;
Third, whether the Court of Appeals erred in ruling that the interest rates imposed by Philippine National Bank were
usurious and unconscionable;
Fourth, whether the Conversion, Restructuring and Extension Agreement executed in 1999 novated the original Loan
and Credit Agreement executed in 1993;
Fifth, whether the Court of Appeals erred in dismissing the appeal under Rule 41 filed by Philippine National Bank,
which assailed the Court of Appeals Decision dated January 21, 2013 in CA-G.R. CV No. 01464-MIN, for being the
wrong remedy;
Sixth, whether the Sheriff’s Provisional Certificate of Sale should be considered registered in view of the entry made
by the Register of Deeds in the Primary Entry Book; and
Lastly, whether Philippine National Bank is entitled to a writ of possession.
I

81
The Petition for Review in G.R. No. 173194 should be denied.
The Petition docketed as G.R. No. 173194, filed by Philippine National Bank, questions the Court of Appeals Resolutions
in CA- G.R. CV No. 79732-MIN dated March 2, 2006 and May 26, 2006, which denied Philippine National Bank’s
applications for damages on the injunction bond and to be appointed as receiver.269
The assailed Resolutions in G.R. No. 173194 are interlocutory orders and are not appealable.
Rule 41, Section 1270 of the Rules of Court provides:
SECTION 1. Subject of Appeal. — An appeal may be taken from a judgment or final order that completely disposes
of the case, or of a particular matter therein when declared by these Rules to be appealable.
No appeal may be taken from:
(b) An interlocutory order;
In any of the foregoing circumstances, the aggrieved party may file an appropriate special civil action as provided in
Rule 65.
In addition, Rule 45, Section 1 of the Rules of Court provides:
SECTION 1. Filing of Petition with Supreme Court. — A party desiring to appeal by certiorari from a judgment, final
order or resolution of the Court of Appeals, the Sandiganbayan, the Court of Tax Appeals, the Regional Trial Court or
other courts, whenever authorized by law, may file with the Supreme Court a verified petition for review on
certiorari[.] (Emphasis supplied)
The difference between an interlocutory order and a final order was discussed in United Overseas Bank v. Judge Ros:271
The word interlocutory refers to something intervening between the commencement and the end of the suit which
decides some point or matter but is not a final decision of the whole controversy. This Court had the occasion to
distinguish a final order or resolution from an interlocutory one in the case of Investments, Inc. v. Court of Appeals,
thus:
x x x A "final" judgment or order is one that finally disposes of a case, leaving nothing more to be done by the Court
in respect thereto, e.g., an adjudication on the merits which, on the basis of the evidence presented on the trial,
declares categorically what the rights and obligations of the parties are and which party is in the right; or a judgment
or order that dismisses an action on the ground, for instance, of res judicata or prescription. Once rendered, the task
of the Court is ended, as far as deciding the controversy or determining the rights and liabilities of the litigants is
concerned. Nothing more remains to be done by the Court except to await the parties’ next move (which among
others, may consist of the filing of a motion for new trial or reconsideration, or the taking of an appeal) and ultimately,
of course, to cause the execution of the judgment once it becomes "final" or, to use the established and more
distinctive term, "final and executory."
Conversely, an order that does not finally dispose of the case, and does not end the Court's task of adjudicating the
parties’ contentions and determining their rights and liabilities as regards each other, but obviously indicates that
other things remain to be done by the Court, is "interlocutory" e.g., an order denying motion to dismiss under Rule
16 of the Rules, or granting of motion on extension of time to file a pleading, or authorizing amendment thereof, or
granting or denying applications for postponement, or production or inspection of documents or things, etc. Unlike a
"final" judgment or order, which is appealable, as above pointed out, an "interlocutory" order may not be questioned
on appeal except only as part of an appeal that may eventually be taken from the final judgment rendered in the
case.272 (Citations omitted)
The Resolutions denying Philippine National Bank’s applications were interlocutory orders since the Resolutions did not
dispose of the merits of the main case.
82
CA-G.R. CV No. 79732-MIN originated from Civil Case No. 28,170-2000, which involved the issues regarding the
interest rates imposed by Philippine National Bank. Hence, the denial of Philippine National Bank’s applications did not
determine the issues on the interest rates imposed by Philippine National Bank.
The proper remedy for Philippine National Bank would have been to file a petition for certiorari under Rule 65 or, in the
alternative, to await the outcome of the main case and file an appeal, raising the denial of its applications as an
assignment of error.
In any case, we continue to resolve the arguments raised in G.R. No. 173194.
Philippine National Bank argues in its Petition for Review docketed as G.R. No. 173194 that its application to hold the
injunction bond liable for damages was filed on time. It points out that the phrase "before the judgment becomes
executory" found in Section 20273 of Rule 57 refers to the judgment in the main case, which, in this case, refers to CA-
G.R. CV No. 79732.274
Philippine National Bank also argues that the Court of Appeals erred in denying its application to be appointed as
receiver because although the Sheriff’s Provisional Certificate of Sale was not registered, the Certificate of Sale
"provides the basis for [Philippine National Bank] to claim ownership over the foreclosed properties."275 As the highest
bidder, Philippine National Bank had the right to receive the rental income of the foreclosed properties.276
Spouses Limso and Davao Sunrise filed their Comment,277 countering that the Court of Appeals did not err in denying
Philippine National Bank’s applications to hold the injunction bond liable for damages and to be appointed as
receiver.278 They cite San Beda College v. Social Security System,279 where this court ruled that "the claim for damages
for wrongful issuance of injunction must be filed before the finality of the decree dissolving the questioned writ." 280
They highlight Philippine National Bank’s admission that the writ of preliminary injunction was dissolved in January
2002, and that the Decision281 dissolving the writ attained finality on September 11, 2002.282
Spouses Limso and Davao Sunrise further point out that while CA-G.R. CV No. 79732 was still pending before the Court
of Appeals, "the decree dissolving the questioned Writ of Preliminary Injunction had already become final."283 Thus,
Philippine National Bank filed its application out of time.284
They argue that in any case, Philippine National Bank cannot claim damages on the injunction bond since it was unable
to secure a judgment in its favor in Civil Case No. 28,170-2000.285
They further argue that the Court of Appeals was correct in denying Philippine National Bank’s application to be
appointed as receiver on the ground that Philippine National Bank is a party to the case and hence, it cannot be
appointed as receiver.286
Spouses Limso and Davao Sunrise then allege that Philippine National Bank is guilty of forum shopping. They argue
that Philippine National Bank’s ex-parte Petition for the issuance of a writ of possession, docketed as Other Case No.
124-2002, and the application to be appointed as receiver have the same purpose: to obtain possession of the
properties.287
Philippine National Bank, through counsel, filed its Reply, countering that San Beda College was decided when the 1964
Rules of Court was still in effect.288 It argues that the cited case is no longer applicable because the 1964 Rules was
superseded by the 1997 Rules of Civil Procedure.289 The applicable case is Hanil Development Co., Ltd. v. Intermediate
Appellate Court,290 where this court ruled that "the judgment against the attachment bond could be included in the
final judgment of the main case."291
Philippine National Bank also argued that under the 1997 Rules of Civil Procedure, the applicant for damages does not
have to be the winning party.292
Philippine National Bank further argues that it did not commit forum shopping since "there is no identity of parties
between CA G.R. CV No. 79732 . . . and Other Case No. 124-2002."293 The causes of action and reliefs sought in the
two cases are different.294 It points out that its application to be appointed as receiver is a provisional remedy under
Rule 59 of the 1997 Rules of Civil Procedure, while its prayer for the issuance of a writ of possession in Other Case No.
124-2002 is based on its right to possess the properties involved.295
We rule that the Court of Appeals properly denied Philippine National Bank’s application to hold the injunction bond
liable for damages and be appointed as receiver. We also rule that no forum shopping was committed by Philippine
National Bank. However, the Court of Appeals erred in ruling that Philippine National Bank filed its application to hold
the injunction bond liable for damages out of time.
The Court of Appeals, in its Resolution dated March 2, 2006, explained:
Records show that when this Court annulled the RTC’s order of injunction, Davao Sunrise thereafter elevated the
matter to the Supreme Court. On July 24, 2002, the Supreme Court denied its petition for having been filed out of
time and an Entry of Judgment was issued on Sept[ember] 11, 2002.
PNB’s instant application however was filed only on February 17, 2005 and/or in the course of its appeal on the main
case – about two (2) years and five (5) months after the judgment annulling the injunction order attained finality.
Clearly, despite that it already obtained a favorable judgment on the injunction matter, PNB failed to file (before the
court a quo) an application for damages against the bond before judgment was rendered in the main case by the
court a quo. Thus, even for this reason alone, Davao Sunrise and its bondsman are relieved of further liability
thereunder.296 (Citations omitted)
The Petition referred to by the Court of Appeals in the quoted Resolution was docketed as G.R. No. 152812 and was
entitled Davao Sunrise Investment and Development Corporation, et al. v. Court of Appeals, et al.297 G.R. No. 152812
originated from CA G.R. SP No. 63351.298 CA G.R. SP No. 63351 was a Petition for Certiorari filed by Philippine National
Bank, which questioned the issuance of a writ of preliminary injunction in Civil Case No. 28,170-2000.299
In the Decision300 dated January 10, 2002, the Court of Appeals granted Philippine National Bank’s Petition for Certiorari
and held that:
In the case at bar, respondents’ claim to a right to preliminary injunction based on PNB’s purported unilateral
imposition of interest rates and subsequent increases thereof, is not a right warranting the issuance of an injunction
to halt the foreclosure proceedings. On the contrary, it is petitioner bank which has proven its right to foreclose
respondents’ mortgaged properties, especially since respondents have admitted their indebtedness to PNB and merely
questioning the interest rates imposed by the bank. . . .
....
Above all, the core and ultimate issue raised in the main case below is the interest stipulation in the loan agreements
between the petitioner and private respondents, the validity of which is still to be determined by the lower court.
Injunctive relief cannot be made to rest on the assumption that said interest stipulation is void as it would preempt
the merits of the main case.
WHEREFORE, premises considered, the assailed Orders of respondent judge dated December 4 and 21, 2000 are
hereby ANNULLED and SET ASIDE, and the Order dated November 20, 2000 denying private respondents prayer for
the issuance of a writ of preliminary injunction is REINSTATED.
83
Spouses Limso and Davao Sunrise assailed the Decision in CA-G.R. SP No. 63351 and filed before this court a Petition
for Review, docketed as G.R. No. 152812. However, the Petition for Review was denied in the Resolution302 dated July
24, 2002 for being filed out of time, and Entry of Judgment303 was made on September 11, 2002.
The issuance of the writ of preliminary injunction in Civil Case No. 28,170-2000 was an interlocutory order, and was
properly questioned by Philippine National Bank through a Petition for Certiorari.
However, the Court of Appeals erred in ruling that Philippine National Bank’s application was filed out of time.
Section 20 of Rule 57 of the Rules of Civil Procedure provides: SECTION 20. Claim for Damages on Account of Improper,
Irregular or Excessive Attachment. — An application for damages on account of improper, irregular or excessive
attachment must be filed before the trial or before appeal is perfected or before the judgment becomes executory, with
due notice to the attaching party and his surety or sureties, setting forth the facts showing his right to damages and
the amount thereof. Such damages may be awarded only after proper hearing and shall be included in the judgment
on the main case.
If the judgment of the appellate court be favorable to the party against whom the attachment was issued, he must
claim damages sustained during the pendency of the appeal by filing an application in the appellate court, with notice
to the party in whose favor the attachment was issued or his surety or sureties, before the judgment of the appellate
court becomes executory. The appellate court may allow the application to be heard and decided by the trial court.
Nothing herein contained shall prevent the party against whom the attachment was issued from recovering in the same
action the damages awarded to him from any property of the attaching party not exempt from execution should the
bond or deposit given by the latter be insufficient or fail to fully satisfy the award.
The judgment referred to in Section 20 of Rule 57 should mean the judgment in the main case. In Carlos v. Sandoval:304
Section 20 essentially allows the application to be filed at any time before the judgment becomes executory. It should
be filed in the same case that is the main action, and cannot be instituted separately. It should be filed with the court
having jurisdiction over the case at the time of the application. The remedy provided by law is exclusive and by failing
to file a motion for the determination of the damages on time and while the judgment is still under the control of the
court, the claimant loses his right to damages. 305 (Citations omitted)
In this case, Philippine National Bank filed its application306 during the pendency of the appeal before the Court of
Appeals. The application was dated January 12, 2005, 307 while the appeal in the main case, docketed as CA-G.R. CV
No. 79732-MIN, was decided on August 13, 2009.308 Hence, Philippine National Bank’s application to hold the injunction
bond liable for damages was filed on time.
The Court of Appeals properly denied Philippine National Bank’s application to be appointed as a receiver.
Rule 59, Section 1 provides the grounds when a receiver may be appointed:
SECTION 1. Appointment of Receiver. — Upon a verified application, one or more receivers of the property subject
of the action or proceeding may be appointed by the court where the action is pending, or by the Court of Appeals
or by the Supreme Court, or a member thereof, in the following cases:
(a) When it appears from the verified application, and such other proof as the court may require, that the party
applying for the appointment of a receiver has an interest in the property or fund which is the subject of the action
or proceeding, and that such property or fund is in danger of being lost, removed, or materially injured unless a
receiver be appointed to administer and preserve it;
 (b) When it appears in an action by the mortgagee for the foreclosure of a mortgage that the property is in danger
of being wasted or dissipated or materially injured, and that its value is probably insufficient to discharge the
mortgage debt, or that the parties have so stipulated in the contract of mortgage;
(c) After judgment, to preserve the property during the pendency of an appeal, or to dispose of it according to the
judgment, or to aid execution when the execution has been returned unsatisfied or the judgment obligor refuses
to apply his property in satisfaction of the judgment, or otherwise to carry the judgment into effect;
(d) Whenever in other cases it appears that the appointment of a receiver is the most convenient and feasible
means of preserving, administering, or disposing of the property in litigation.
During the pendency of an appeal, the appellate court may allow an application for the appointment of a receiver to be
filed in and decided by the court of origin and the receiver appointed to be subject to the control of said court.
In Commodities Storage & Ice Plant Corporation v. Court of Appeals:309
The general rule is that neither party to a litigation should be appointed as receiver without the consent of the other
because a receiver should be a person indifferent to the parties and should be impartial and disinterested. The
receiver is not the representative of any of the parties but of all of them to the end that their interests may be equally
protected with the least possible inconvenience and expense. 310 (Citations omitted)
The Court of Appeals cited Spouses Limso and Davao Sunrise’s objection to Philippine National Bank’s application to be
appointed as receiver as one of the grounds why the application should fail. 311
Also, the Court of Appeals found that the mortgaged properties of Spouses Limso and Davao Sunrise were earning
approximately ₱12,000,000.00 per month. This proves that the properties were being administered properly and did
not require the appointment of a receiver. Also, to appoint Philippine National Bank as receiver would be premature
since the trial court’s Decision was pending appeal.312
Philippine National Bank did not commit forum shopping when it filed an ex-parte Petition for the issuance of a writ of
possession and an application for appointment as receiver.
The elements of forum shopping are:
(a) identity of parties, or at least such parties as represent the same interests in both actions;
(b) identity of rights asserted and relief prayed for, the relief being founded on the same facts; and
(c) the identity of the two preceding particulars, such that any judgment rendered in the other action will, regardless
of which party is successful, amount to res judicata in the action under consideration.313 (Citation omitted)
There is no identity of parties because the party to the Petition for Issuance of Writ of Possession is Philippine National
Bank only, while there are two parties to application for appointment as receiver: Philippine National Bank on one hand,
and Spouses Limso and Davao Sunrise on the other.
The causes of action are also different. In the Petition for Issuance of Writ of Possession, Philippine National Bank prays
that it be granted a writ of possession over the foreclosed properties because it is the winning bidder in the foreclosure
sale.314 On the other hand, Philippine National Bank’s application to be appointed as receiver is for the purpose of
preserving these properties pending the resolution of CA-G.R. CV No. 79732.315 While the issuance of a writ of
possession or the appointment as receiver would have the same result of granting possession of the foreclosed
properties to Philippine National Bank, Philippine National Bank’s right to possess these properties as the winning bidder
in the foreclosure sale is different from its interest as creditor to preserve these properties.
II
84
There is no mutuality of contracts when the determination or imposition of interest rates is at the sole discretion of a
party to the contract. Further, escalation clauses in contracts are void when they allow the creditor to unilaterally adjust
the interest rates without the consent of the debtor.
The Petitions docketed as G.R. Nos. 196958 and 197120 assail the Decision in CA-G.R. CV No. 79732-MIN.316
Philippine National Bank argues that the principle of mutuality of contracts was not violated because Spouses Limso
and Davao Sunrise were notified as to the applicable interest rates, and their consent was obtained before the effectivity
of the agreement.317 There was no unilateral imposition of interest rates since the rates were dependent on the
prevailing market rates.318
Philippine National Bank also argues that Spouses Limso and Davao Sunrise were regularly informed by Philippine
National Bank of the interest rates imposed on their loan, as shown by Robert Alan L. Limso’s signatures on the letters
sent by Philippine National Bank.319
Philippine National Bank further argues that loan agreements with escalation clauses, by their nature, "would not
indicate the exact rate of interest applicable to a loan precisely because it is made to depend by the parties to external
factors such as market indicators and/or government regulations affecting the cost of money." 320
Philippine National Bank cites Solidbank Corp., (now Metropolitan Bank and Trust Company) v. Permanent Homes,
Incorporated,321 where this court held that "contracts with escalation clause do not violate the principle of mutuality of
contracts."322
Philippine National Bank contends that the Conversion, Restructuring and Extension Agreement novated the previous
contracts with Spouses Limso and Davao Sunrise. In addition, the alleged infirmities in the previous contracts were set
aside upon the execution of the Conversion, Restructuring and Extension Agreement. 323
On the other hand, Spouses Limso and Davao Sunrise argue that the Court of Appeals did not err in ruling that the
interest rates were imposed unilaterally. Spouses Limso and Davao Sunrise allege that the interest rates were not
stipulated in writing, in violation of Article 1956 of the Civil Code.324 Also, the Court of Appeals did not err in reducing
the penalties and attorney’s fees since Article 2227 of the Civil Code states:325
Article 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they
are iniquitous or unconscionable.
Spouses Limso and Davao Sunrise add that the letters sent by Philippine National Bank to Davao Sunrise were not
agreements but mere notices that the interest rates were increased by Philippine National Bank. 326 Moreover, the
letters were received by Davao Sunrise’s employees who were not authorized to receive such letters. 327 Some of the
letters did not even appear to have been received by anyone at all.328
Spouses Limso and Davao Sunrise allege that Philippine National Bank admitted that the penalties stated in the
agreements were in the nature of liquidated damages.329 Nevertheless, Spouses Limso and Davao Sunrise question
the Court of Appeals’ ruling insofar as it held that their remaining obligation to Philippine National Bank is
₱803,185,411.11 as of September 1, 2008. According to Spouses Limso and Davao Sunrise, they have overpaid
Philippine National Bank in the amount of ₱15,915,588.89.330
Philippine National Bank counters that Davao Sunrise and Spouses Limso’s promissory notes had a provision stating:
 [T]he rate of interest shall be set at the start of every Interest Period. For this purpose, I/We agree that the rate of
interest herein stipulated may be increased or decreased for the subsequent Interest Periods, with PRIOR NOTICE
TO THE BORROWER in the event of changes in the interest rate prescribed by law or the Monetary Board of Central
Bank of the Philippines or in the Bank’s overall cost of funds. I/We hereby agree that IN THE EVENT I/WE ARE
NOT AGREEABLE TO THE INTEREST RATE FIXED FOR ANY INTEREST PERIOD, I/WE HAVE THE OPTION TO
PREPAY THE LOAN OR CREDIT FACILITY WITHOUT PENALTY within ten (10) calendar days from the Interest
Setting Date.331 (Emphasis in the original)
As to the letters sent by Philippine National Bank, these letters were received by the Chief Finance Officer, Chairman,
and President of Davao Sunrise. In addition, assuming that the employees who allegedly received the letters were not
authorized to do so, the unauthorized acts were ratified by Spouses Limso and Davao Sunrise when they used the
proceeds of the loan.332
We rule that there was no mutuality of contract between the parties since the interest rates imposed were based on
the sole discretion of Philippine National Bank.333 Further, the escalation clauses in the real estate mortgage "[did]
not specify a fixed or base interest[.]"334 Thus, the interest rates are invalid.
The principle of mutuality of contracts is stated in Article 1308 of the Civil Code as follows:
Article 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of
one of them.
The importance of the principle of mutuality of contracts was discussed in Juico v. China Banking Corporation:335
The binding effect of any agreement between parties to a contract is premised on two settled principles: (1) that any
obligation arising from contract has the force of law between the parties; and (2) that there must be mutuality
between the parties based on their essential equality. Any contract which appears to be heavily weighed in favor of
one of the parties so as to lead to an unconscionable result is void. Any stipulation regarding the validity or compliance
of the contract which is left solely to the will of one of the parties, is likewise, invalid.336 (Citation omitted)
When there is no mutuality between the parties to a contract, it means that the parties were not on equal footing when
the terms of the contract were negotiated. Thus, the principle of mutuality of contracts dictates that a contract must
be rendered void when the execution of its terms is skewed in favor of one party.337
The Court of Appeals also noted that since the interest rates imposed were at the sole discretion of Philippine National
Bank, and that Spouses Limso and Davao Sunrise were merely notified when there were changes in the interest rates,
Philippine National Bank violated the principle of mutuality of contracts.338 The Court of Appeals ruled that:
We cannot subscribe to appellant bank’s allegation that plaintiffs-appellees agreed to these interest rates by receiving
various letters from PNB. Those letters cannot be construed as agreements as a simple reading of those letters would
show that they are mere notices informing plaintiffs-appellees that the bank, through its top management, had
already imposed interest rates on their loan. The uniform wordings of the said letters go this way:
This refers to your existing credit facility in the principal amount of P850.0 MM granted by the Philippine National
Bank by and under the terms and conditions of that Credit Agreement dated 12.2.97 (Renewal of Credit Facility).
We wish to advise you that the top management has approved an interest rate of 20.756% which will be used in
computing the interest due on your existing peso and redenominated availments against the credit facility for the
period July 20 to August 19, 1998.
If you are amenable to this arrangement, please signify your conformity on the space provided below and return to us
the original copy of the document. If we receive no written objection by the end of 10 days from date of receipt of this
letter, we will take it to mean that you agree to the new interest rate we quote. On the other hand, if you disagree
85
with the quoted rate, you will have to pay the loan in full within the same ten-day period otherwise, the entire loan will
be considered due and demandable.339 (Citation omitted)
The contents of the letter quoted by the Court of Appeals show that there was no room for negotiation among Philippine
National Bank, Spouses Limso, and Davao Sunrise when it came to the applicable interest rate. Since there was no
room for negotiations between the parties with regard to the increases of the rates of interest, the principle of mutuality
of contracts was violated. There was no meeting of the minds between Spouses Limso, Davao Sunrise, and Philippine
National Bank because the increases in the interest rates were imposed on them unilaterally.
Meeting of the minds between parties to a contract is manifested when the elements of a valid contract are all
present.340 Article 1318 of the Civil Code provides:
Article 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
When one of the elements is wanting, no contract can be perfected. 341 In this case, no consent was given by Spouses
Limso and Davao Sunrise as to the increase in the interest rates. Consequently, the increases in the interest rates are
not valid.
Even the promissory notes contained provisions granting Philippine National Bank the sole discretion to set the interest
rate:
[Promissory Note] NO. 0015138516350115 . . .
....
. . . I/We, jointly and severally, promise to pay to the order of the Philippine National Bank (the ‘Bank’) at its office
in cm recto avenue davao city [sic], Philippines, the sum of PHILIPPINE PESOS: 583,183,333.34 (P583,183,333.34)
together with interest thereon for the current Interest Period at a rate of to be set by mgt. [management]. Interest
Period shall mean the period commencing on the date hereof and having a duration not exceeding monthly (____)
days and each similar period thereafter commencing upon the expiry of the immediately preceding Interest Period.
The rate of interest shall be set at the start of every Interest Period. For this purpose, I/We agree that the rate of
interest herein stipulated may be increased or decreased for the subsequent Interest Periods, with prior notice to the
Borrower in the event of changes in interest rate prescribed by law or the Monetary Board of the Central Bank of the
Philippines, or in the Bank’s overall cost of funds. I/We hereby agree that in the event I/We are not agreeable to the
interest rate fixed for any Interest Period, I/we shall have the option to prepay the loan or credit facility without
penalty within ten (10) calendar days from the Interest Setting Date. 342
Promissory Note No. 0015138516350116343 contained the same provisions, differing only as to the amount of the
obligation.
Assuming that Davao Sunrise and Spouses Limso agreed to the increase in interest rates, the interest rates are still
null and void for being unreasonable.344
This court has held that while the Usury Law was suspended by Central Bank Circular No. 905, Series of 1982,
unconscionable interest rates may be declared illegal. 345 The suspension of the Usury Law did not give creditors an
unbridled right to impose arbitrary interest rates. To determine whether an interest rate is unconscionable, we are
guided by the following pronouncement:
In determining whether the rate of interest is unconscionable, the mechanical application of pre-established floors
would be wanting. The lowest rates that have previously been considered unconscionable need not be an impenetrable
minimum. What is more crucial is a consideration of the parties’ contexts. Moreover, interest rates must be appreciated
in light of the fundamental nature of interest as compensation to the creditor for money lent to another, which he or
she could otherwise have used for his or her own purposes at the time it was lent. It is not the default vehicle for
predatory gain. As such, interest need only be reasonable. It ought not be a supine mechanism for the creditor’s unjust
enrichment at the expense of another.346
A reading of the interest provisions in the original agreement and the Conversion, Restructuring and Extension
Agreement shows that the interest rates imposed by Philippine National Bank were usurious and unconscionable.
In the original credit and loan agreements executed in 1993, the interest provisions provide:
CREDIT AGREEMENT
....
1.04 Interest on Availments. (a) The Borrowers agree to pay interest on each availment from date of each availment
up to, but not including the date of full payment thereof at a rate per annum that is determined by the Bank to be
equivalent to the Bank’s prime rate less 1.0% in effect as of the date of the relevant Availment, subject to quarterly
review and to maintenance of deposits with ADB of at least 5% of the amount availed in its savings and current
account. Non compliance of ADB requirement shall subject the credit line to regular interest rate which is the prime
rate plus applicable spread.347
LOAN AGREEMENT
....
1.03 Interest. (a) The Borrowers hereby agree to pay interest on the loan from the date of Drawdown up to
Repayment Date at the rate that is determined by the Bank to be the Bank’s prime rate in effect at the Date of
Drawdown less 1.0% and which shall be reset every 90 days to coincide with interest payments.
(b) The determination by the Bank of the amount of interest due and payable hereunder shall be conclusive and
binding on the borrower in the absence of manifest error in the computation.348 (Emphasis supplied, underscoring in
the original)
In the Conversion, Restructuring and Extension Agreement, the interest provisions state:
SECTION 2. TERMS OF LOAN I
....
2.04 Interest. (a) The Borrowers agree to pay the Bank interest on Loan I from the Effective Date, until the date of
full payment thereof at the rate per annum to be set by the Bank. The interest rate shall be reset by the Bank every
month.
....
SECTION 3. TERMS OF LOAN II
....
3.04 Interest. (a) The Borrowers agree to pay the Bank interest on Loan II from the Effective Date, until the date of
full payment thereof at the rate per annum to be set by the Bank. The interest rate shall be reset by the Bank every
month.349 (Emphasis supplied, underscoring in the original)
From the terms of the loan agreements, there was no way for Spouses Limso and Davao Sunrise to determine the
interest rate imposed on their loan because it was always at the discretion of Philippine National Bank.
Nor could Spouses Limso and Davao Sunrise determine the exact amount of their obligation because of the frequent
changes in the interest rates imposed.
As found by the Court of Appeals, the loan agreements merely stated that interest rates would be imposed. However,
the specific interest rates were not stipulated, and the subsequent increases in the interest rates were all at the
discretion of Philippine National Bank.350
Also invalid are the escalation clauses in the real estate mortgage and promissory notes. The escalation clause in the
real estate mortgage states:
"(k) INCREASE OF INTEREST RATE:
"The rate of interest charged on the obligation secured by this mortgage as well as the interest on the amount which
may have been advanced by the mortgagee, in accordance with the provisions hereof shall be subject during the life
86
of this contract to such an increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE may
prescribe for its debtors."351
The escalation clause in the promissory notes352 states:
For this purpose, I/We agree that the rate of interest herein stipulated may be increased or decreased for the
subsequent Interest Periods, with prior notice to the Borrower in the event of changes in interest rate prescribed by
law or the Monetary Board or the Central Bank of the Philippines, or in the Bank’s overall cost of funds. 353
Banco Filipino Savings and Mortgage Bank v. Judge Navarro354 defined an escalation clause as "one which the contract
fixes a base price but contains a provision that in the event of specified cost increases, the seller or contractor may
raise the price up to a fixed percentage of the base."355
This court has held that escalation clauses are not always void since they serve "to maintain fiscal stability and to retain
the value of money in long term contracts."356 However:
[A]n escalation clause "which grants the creditor an unbridled right to adjust the interest independently and upwardly,
completely depriving the debtor of the right to assent to an important modification in the agreement" is void. A
stipulation of such nature violates the principle of mutuality of contracts. Thus, this Court has previously nullified the
unilateral determination and imposition by creditor banks of increases in the rate of interest provided in loan
contracts.
....
. . . [W]e hold that the escalation clause is . . . void because it grants respondent the power to impose an increased
rate of interest without a written notice to petitioners and their written consent. Respondent’s monthly telephone
calls to petitioners advising them of the prevailing interest rates would not suffice. A detailed billing statement based
on the new imposed interest with corresponding computation of the total debt should have been provided by the
respondent to enable petitioners to make an informed decision. An appropriate form must also be signed by the
petitioners to indicate their conformity to the new rates. Compliance with these requisites is essential to preserve the
mutuality of contracts. For indeed, one-sided impositions do not have the force of law between the parties, because
such impositions are not based on the parties' essential equality.357 (Citations omitted)
The interest rate provisions in Philippine National Bank’s loan agreements and real estate mortgage contracts have
been nullified by this court in several cases. Even the escalation clauses in Philippine National Bank’s contracts were
noted to be violative of the principle of mutuality of contracts.358
The original loan agreement in this case was executed in 1993. Prior to the execution of the original loan agreement,
this court promulgated a Decision in 1991 ruling that "the unilateral action of the [Philippine National Bank] in increasing
the interest rate on the private respondent’s loan, violated the mutuality of contracts ordained in Article 1308 of the
Civil Code[.]"359
In Philippine National Bank v. Court of Appeals,360 the interest rate provisions were nullified because these allowed
Philippine National Bank to unilaterally increase the interest rate.361 The nullified interest rate provisions were worded
as follows:
"The Credit Agreement provided inter alia, that—
‘(a) The BANK reserves the right to increase the interest rate within the limits allowed by law at any time depending
on whatever policy it may adopt in the future: Provided, that the interest rate on this accommodation shall be
correspondingly decreased in the event that the applicable maximum interest is reduced by law or by the Monetary
Board. In either case, the adjustment in the interest rate agreed upon shall take effect on the effectivity date of
the increase or decrease in the maximum interest rate.’
"The Promissory Note, in turn, authorized the PNB to raise the rate of interest, at any time without notice, beyond
the stipulated rate of 12% but only ‘within the limits allowed by law.’
The Real Estate Mortgage contract likewise provided that—
‘(k) INCREASE OF INTEREST RATE: The rate of interest charged on the obligation secured by this mortgage as well
as the interest on the amount which may have been advanced by the MORTGAGEE, in accordance with the provision
hereof, shall be subject during the life of this contract to such an increase within the rate allowed by law, as the
Board of Directors of the MORTGAGEE may prescribe for its debtors.’362
This court explained that:
Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties
must meet as to the proposed modification, especially when it affects an important aspect of the agreement. In the
case of loan contracts, it cannot be gainsaid that the rate of interest is always a vital component, for it can make or
break a capital venture. Thus, any change must be mutually agreed upon, otherwise, it is bereft of any binding
effect.363
In a subsequent case364 also involving Philippine National Bank, this court likewise nullified the interest rate provisions
of Philippine National Bank and discussed:
In this case no attempt was made by PNB to secure the conformity of private respondents to the successive increases
in the interest rate. Private respondents’ assent to the increases cannot be implied from their lack of response to the
letters sent by PNB, informing them of the increases. For as stated in one case, no one receiving a proposal to change
a contract is obliged to answer the proposal.365 (Citation omitted)
However, only the interest rate imposed is nullified; hence, it is deemed not written in the contract. The agreement on
payment of interest on the principal loan obligation remains. It is a basic rule that a contract is the law between
contracting parties.366 In the original loan agreement and the Conversion, Restructuring and Extension Agreement,
Spouses Limso and Davao Sunrise agreed to pay interest on the loan they obtained from Philippine National Bank.
Such obligation was not nullified by this court. Thus, their obligation to pay interest in their loan obligation subsists.367
Spouses Abella v. Spouses Abella368 involved a simple loan with an agreement to pay interest. Unfortunately, the
applicable interest rate was not stipulated by the parties. This court discussed that in cases where the parties fail to
specify the applicable interest rate, the legal rate of interest applies. This court also discussed that the applicable legal
rate of interest shall be the prevailing rate at the time when the agreement was entered into:369
This is so because interest in this respect is used as a surrogate for the parties’ intent, as expressed as of the time
of the execution of their contract. In this sense, the legal rate of interest is an affirmation of the contracting parties’
intent; that is, by their contract’s silence on a specific rate, the then prevailing legal rate of interest shall be the cost
of borrowing money. This rate, which by their contract the parties have settled on, is deemed to persist regardless
of shifts in the legal rate of interest. Stated otherwise, the legal rate of interest, when applied as conventional interest,
shall always be the legal rate at the time the agreement was executed and shall not be susceptible to shifts in rate.370
Further, Spouses Abella cited Article 2212371 of the Civil Code and the ruling in Nacar v. Gallery Frames,372 which both
state that "interest due shall itself earn legal interest from the time it is judicially demanded:"373
[T]he interest due on conventional interest shall be at the rate of 12% per annum from [date of judicial demand] to
June 30, 2013. Thereafter, or starting July 1, 2013, this shall be at the rate of 6% per annum. 374
In this case, the Conversion, Restructuring and Extension Agreement was executed on January 28, 1999. Thus, the
applicable interest rate on the principal loan obligation (conventional interest) is at 12% per annum. With regard to
the interest due on the conventional interest, judicial demand was made on August 21, 2000 when Philippine National
Bank filed a Petition375 for Extrajudicial Foreclosure of Real Estate Mortgage. 376 Thus, from August 21, 2000 to June
30, 2013, the interest rate on conventional interest shall be at 12%. From July 1, 2013 until full payment, the applicable
interest rate on conventional interest shall be at 6%.
87
III
The Conversion, Restructuring and Extension Agreement novated the original agreement executed in 1993. However,
the nullified interest rate provisions in the original loan agreement cannot be deemed as having been legitimized,
ratified, or set aside.
Philippine National Bank argues that the Conversion, Restructuring and Extension Agreement novated the original loan
agreement and that the novation effectively set aside the infirmities in the original loan agreement. 377
The Civil Code provides that:
Article 1292. In order that an obligation may be extinguished by another which substitutes the same, it is imperative
that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible
with each other.
Novation has been defined as:
Novation may either be express, when the new obligation declares in unequivocal terms that the old obligation is
extinguished, or implied, when the new obligation is on every point incompatible with the old one. The test of
incompatibility lies on whether the two obligations can stand together, each one with its own independent existence.
For novation, as a mode of extinguishing or modifying an obligation, to apply, the following requisites must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.378 (Citations omitted)
The original Credit Agreement379 was executed on September 1, 1993,380 while the Conversion, Restructuring and
Extension Agreement381 was executed on January 28, 1999.382
Pertinent portions of the Conversion, Restructuring and Extension Agreement state:
WITNESSETH: That –
....
WHEREAS, the Borrowers [referring to DSIDC and spouses Limso] acknowledge that they have outstanding
obligations (the "Obligations") with the Bank broken down as follows:
(i) Credit Line – ₱583.18 Million (as of September 30, 1998);
(ii) Loan – ₱266.67 Million (as of September 30, 1998); and
(iii) Interest – ₱217.15 Million (as of December 31, 1998);
WHEREAS, at the request of the Borrowers, the Bank has approved (a) the conversion and restructuring of the
Credit Line portion of the Obligations into a term loan, (b) the extension of the term of the Loan for another four
(4) years, (c) the capitalization on accrued interest (up to December 31, 1998) on the Obligations, (d) the waiver
of the penalties charges (if any) accruing on the Obligations, and (e) the partial release of chattel mortgage on
stock inventories, subject to the terms and conditions hereinafter set forth;
SECTION 2. TERMS OF LOAN I
2.01 Amount of Loan I. Loan I shall be in the principal amount not exceeding PESOS: FIVE HUNDRED EIGHTY
THREE MILLION ONE HUNDRED EIGHTY THOUSAND (₱583,180,000.00)
....
SECTION 3. TERMS OF LOAN II
3.01 Amount of Loan II. Loan II shall be in the principal amount not exceeding PESOS: FOUR HUNDRED EIGHTY
THREE MILLION SEVEN HUNDRED EIGHTY THOUSAND (₱483,780,000.00).383
 In this case, the previous valid obligation of Spouses Limso and Davao Sunrise was the payment of a loan in the
total amount of ₱700 million, plus interest.
Upon the request of Spouses Limso and Davao Sunrise, Philippine National Bank agreed to restructure the original
loan agreement.384
Philippine National Bank summarized the Conversion, Restructuring and Extension Agreement as follows:
(a) The conversion of the Revolving Credit Line into a Term Loan in the principal amount of 583.18 Million and
denominated as "Loan I".
(b) The Extension for another four (4) years of the original long term loan (from 01 September 2001 to 31 December
2005);
(c) The capitalization of the accrued interest on both the Revolving Credit Line and the Long Term Loan up to 31
December 1998;
(d) The consolidation of the accrued interest and the outstanding obligation of the original Long Term Loan to form
"Loan 2" with the total principal amount of P483.82 Million;
(e) Waiver of penalty charges;
(f) Partial release of chattel mortgage on the stock inventories;
(g) Both "Loan I" and "Loan II" were made payable within seven (7) years in monthly amortization and a balloon
payment on or before December 2005.385
When the loan agreement was restructured, the principal obligation of Spouses Limso and Davao Sunrise became
₱1.067 billion.
The Conversion, Restructuring and Extension Agreement novated the original credit agreement because the principal
obligation itself changed.
Important provisions of the original agreement were altered. For example, the penalty charges were waived and the
terms of payment were extended.
Further, the preambular clauses of the Conversion, Restructuring and Extension Agreement show that Spouses Limso
and Davao Sunrise sought to change the terms of the original agreement and that they themselves acknowledged their
obligation to be ₱1.067 billion. They are now estopped from claiming that their obligation should be based on the
original agreement when it was through their own actions that the loan was restructured.
Thus, the Court of Appeals in CA-G.R. CV No. 79732-MIN erred in not declaring that the Conversion, Restructuring and
Extension Agreement novated the original agreement and in computing Spouses Limso and Davao Sunrise’s obligation
based on the original agreement.
Since the Conversion, Restructuring and Extension Agreement novated the original credit agreement, we modify the
Court of Appeals Decision in that the outstanding obligation of Spouses Limso and Davao Sunrise should be computed
on the basis of the Conversion, Restructuring and Extension Agreement.
In the Court of Appeals Decision dated August 13, 2009:
Computing the interest at 12% per annum on the principal amount of 700 Million Pesos, the interest should be 84
Million Pesos per annum. Multiplying 84 Million Pesos by 15 years from September 1, 1993 to September 1, 2008,
the interest for the 15-year period would be One Billion Two Hundred Sixty Million Pesos (P1,260,000,000.00). Then,
by adding the interest of P1,260,000,000.00 to the principal amount of 700 Million Pesos, the total obligation of
plaintiffs-appellees would be One Billion Nine Hundred Sixty Million Pesos (P1,960,000,000.00) by September 1,
2008. And since plaintiffs-appellees has paid a total amount of One Billion One Hundred Fifty Six Million Eight Hundred
Fourteen Thousand Five Hundred Eighty Eight Pesos and 89/100 (P1,156,814,588.89) to appellant PNB as of
88
December 5, 1998, as per PNB’s official computation of payments per official receipts, then, plaintiffs-appellees would
still have an outstanding balance of about Eight Hundred Three Million One Hundred Eighty Five Thousand Four
Hundred Eleven and 11/100 Pesos (P 803,185,411.11) as of September 1, 2008. The amount of P 803,185,411.11
will earn interest at the legal rate of 12% per annum from September 1, 2008 until fully paid.
WHEREFORE, the assailed Decision dated June 19, 2002 and Order dated August 13, 2002 of the Regional Trial
Court of Davao City, Branch 17 in Civil Case No. 28,170-2000 declaring the unilateral imposition of interest rates by
defendant-appellant PNB as null and void appealed from are AFFIRMED with the MODIFICATION that the
obligation of plaintiffs-appellees arising from the Loan and Revolving Credit Line and subsequent Conversion,
Restructuring and Extension Agreement as Loan I and Loan II shall earn interest at the legal rate of twelve percent
(12%) per annum computed from September 1, 1993, until fully paid and satisfied.
Notably, in the body of the Court of Appeals Decision, Spouses Limso and Davao Sunrise’s obligation was computed on
the basis of the original loan agreement, while in the dispositive portion, the Court of Appeals cited both the original
loan agreement and the Conversion, Restructuring and Extension Agreement.
The general rule is that:
Where there is a conflict between the dispositive part and the opinion of the court contained in the text or body of
the decision, the former must prevail over the latter on the theory that the dispositive portion is the final order, while
the opinion is merely a statement ordering nothing.387 (Citation omitted)
To avoid confusion, we also rule that the interest rate provisions and the escalation clauses in the Conversion,
Restructuring and Extension Agreement are nullified insofar as they allow Philippine National Bank to unilaterally
determine and increase the imposable interest rates.
Article 1409388 of the Civil Code provides that void contracts cannot be ratified. Hence, the void interest rate provisions
in the original loan agreement could not have been ratified by the execution of the Conversion, Restructuring and
Extension Agreement.
IV
The proper remedy to assail a decision on pure questions of law is to file a petition for review on certiorari under Rule
45, not an appeal under Rule 41 of the 1997 Rules of Civil Procedure.
One of the issues raised by Philippine National Bank in G.R. No. 205463 is the dismissal of its appeal under Rule 41 by
the Court of Appeals in its Decision dated January 21, 2013.389
Philippine National Bank, through counsel, argues that Rule 41 is the proper remedy because its Petition raises
questions of fact and of law.390 For example, the issue of whether there is an annotation of encumbrance on the titles
of the mortgaged properties is a question of fact.391
Denying Philippine National Bank’s appeal under Rule 41, the Court of Appeals stated that:
[Philippine National Bank] simply takes issue against the conclusions made by the court a quo which pertains to the
matter of whether mere entry in the Primary Entry Book, sans the signature of the registrar, already completes
registration. It does not question the weight and probative value of the fact that the signature of Atty. Patriarcha
[sic] was previously entered in the records then revoked by her. What PNB seeks, therefore, is a review of the
decision of the court a quo dismissing its petition, without delving into the weight of the evidence, but on the
 correctness of the court a quo’s conclusions based on the evidence presented before it. This is clearly a question of
law.
To the mind of this Court, PNB seeks to harp repeatedly on the issue of the court a quo’s failure to consider that the
certificate of sale has been duly registered on February 4, 2002 upon mere entry in the Primary Entry Book, even
without the signature of the then register of deeds. Though couched in different creative presentations, all the errors
assigned by PNB point to one vital question: What completes registration? To answer it, this Court is not asked to
calibrate the evidence presented, or gauge the truth or falsity, but to apply the appropriate law to the situation. This
is clearly a question of law.392 (Emphasis in the original)
In Land Bank of the Philippines v. Yatco Agricultural Enterprises,393 this court discussed the difference between
questions of law and questions of fact:
As a general rule, the Court’s jurisdiction in a Rule 45 petition is limited to the review of pure questions of law. A
question of law arises when the doubt or difference exists as to what the law is on a certain state of facts. Negatively
put, Rule 45 does not allow the review of questions of fact. A question of fact exists when the doubt or difference
arises as to the truth or falsity of the alleged facts.
The test in determining whether a question is one of law or of fact is "whether the appellate court can determine the
issue raised without reviewing or evaluating the evidence, in which case, it is a question of law[.]" Any question that
invites calibration of the whole evidence, as well as their relation to each other and to the whole, is a question of fact
and thus proscribed in a Rule 45 petition.394 (Citations omitted)
Based on the foregoing, there was no error on the part of the Court of Appeals when it dismissed Philippine National
Bank’s Petition for being the wrong remedy. Indeed, Philippine National Bank was not questioning the probative value
of the evidence. Instead, it was questioning the conclusion of the trial court that registration had not been perfected
based on the evidence presented.
V 47 of Republic Act No. 8791.404 Thus, it is entitled to a writ of possession.405
The registration of the Sheriff’s Provisional Certificate of Sale was completed.
Philippine National Bank argues that the registration was completed, and restates the doctrine in National Housing
Authority v. Basa, Jr., et al.:395
Once the Certificate of Sale is entered in the Primary Book of Entry of the Registry of Deeds with the registrant having
paid all the required fees and accomplished all that is required of him under the law to cause registration, the
registration is complete.396
Philippine National Bank further argues that "[t]he records of all the transactions are recorded in the Primary Entry
Book and the annotation on the titles of the transaction do not control registration. It is the recording in the Primary
Entry Book which controls registration."397
Philippine National Bank adds that though the annotation of a certificate of sale at the back of the certificates of title is
immaterial in the perfection of registration, the evidence shows that the Certificate of Sale was annotated.398
Philippine National Bank alleges that registration was completed because Atty. Patriarca, the Register of Deeds at that
time, affixed her signature but would later erase it.399
89
Philippine National Bank cites Atty. Cruzabra’s Comment, which alleges that the Sheriff’s Provisional Certificate of Sale
and other documents relative to the sale were registered in the Primary Entry Book of the Registry of Deeds of Davao
City.400 The Comment also states that:
3. The Sheriff’s Provisional Certificate of Sale was annotated at the back of the aforementioned titles but it does not
bear the signature of the former Registrar of Deeds. Noted however is that the portion below the annotation of the
Provisional Sheriff’s [sic] Certificate of Sale there appears to be erasures ("snowpake"), and [Atty. Cruzabra] is not
in a position to conclude as to the circumstances [relative to said erasures], for lack of personal knowledge as to
what transpired at that time.401 (Citation omitted)
Philippine National Bank also cites the Decision in Administrative Case No. 02-13 dated January 12, 2005, which was
the case against Atty. Patriarca for Grave Misconduct and Conduct Unbecoming of a Public Official. In the Decision, the
Land Registration Authority found that:
Respondent herein likewise admits that she finally signed the PNB transaction annotated on the subject titles when
she was informed that the motion for reconsideration was denied by this Authority, but she subsequently erased her
signature when she subsequently found out that an appeal was filed by the Limso spouses.
....
The registration of these documents became complete when respondent affixed her signature below these
annotations. Whatever information belatedly gathered thereafter relative to the circumstances as to the registrability
of these documents, respondent can not unilaterally take judicial notice thereof and proceed to lift at her whims and
caprices what has already been officially in force and effective, by erasing thereon her signature.402
In addition, Philippine National Bank argues that the erasure of Atty. Patriarca’s signature using correction fluid could
not have revoked, cancelled, or annulled the registration since under Section 108 of Presidential Decree 1529, only a
court order can revoke registration.403
Philippine National Bank alleges that it has complied with the requirements under Section 7 of Act No. 3135 and Section
The Office of the Solicitor General filed its Comment,406 quoting the dispositive portion of the Land Registration
Authority’s Consulta No. 3405 dated May 21, 2002:407
WHEREFORE, in view of the foregoing, the Sheriff’s Provisional Certificate of Sale dated February 04, 2002 is
registerable on TCT Nos. T-147820, T-147386, and T-247012, provided all other registration requirements are
complied with.408 (Emphasis supplied)
The Office of the Solicitor General also quotes the dispositive portion of the Land Registration Authority’s Resolution in
the Motion for Reconsideration:409
WHEREFORE, in view of the foregoing[,] the Sheriff’s Provisional Certificate of Sale dated February 4, 2002 is
registrable on TCT Nos. T-147820, T-147821, T-147386 and T-247012, provided all other registration requirements
are complied with.410 (Emphasis supplied)
The Office of the Solicitor General then cites National Housing Authority and Autocorp Group and Autographics, Inc. v.
Court of Appeals411 and discusses that when all the requirements for registration of annotation has been complied with,
it is ministerial upon the Register of Deeds to register the annotation. 412 The Register of Deeds is not authorized "to
make an appraisal of proofs outside of the documents sought to be registered."413
For the Office of the Solicitor General, the Register of Deeds’ refusal to affix the annotation on the foreclosed properties’
titles "should not preclude the completion of the registration of any applicant who has complied with the requirements
of the law to register its right or interest in registered lands."414
Spouses Limso and Davao Sunrise, as intervenors-oppositors, filed a Memorandum.415 They cite Section 117416 of
Presidential Decree No. 1529417 and argue that registration of the Certificate of Sale in the Primary Entry Book is a
preliminary step in registration.418 Since Philippine National Bank withdrew the documents it submitted to the Register
of Deeds of Davao City, the Sheriff’s Provisional Certificate of Sale was not registered. 419
Further, Philippine National Bank’s argument that "entry . . . in the Primary Entry Book is equivalent to registration" 420 is
not in accordance with Section 56421 of Presidential Decree No. 1529.422 Moreover, "[t]he signature of the Register of
Deeds is crucial to the completeness of the registration process."423
Spouses Limso and Davao Sunrise posit that Philippine National Bank admitted that the Certificate of Sale is not
registered in various hearings.424
These admissions are judicial admissions that should be binding on Philippine National Bank.425
Spouses Limso and Davao Sunrise allege that during the oral arguments held on March 19, 2003 at the Court of Appeals
in CA G.R. SP No. 71527, counsel for Philippine National Bank stated:426
ATTY. [BENILDA A.] TEJADA: Yes, we can show the documents which we are going to file your Honors.
We would like to state also your Honors the fact of why no registration was ever made in this case. Counsel forgot
to mention that the fact of no registration is simply because the Register of Deeds refused to register our Certificate
of Sale. We have a pending case against them Sir before the LRA and before the Ombudsman fore [sic] refusal to
register our Certificate of Sale. Now, we have filed this case because inspite [sic] of the fact the Register of Deeds
addressed a consulta to the Land Registration Authority on the registerity of the Certificate of Sale your Honors[,]
[i]t was at their instance that there was a consulta.
And then, the Land Registration Authority has already rendered its opinion that the document is registrable. Despite
that your Honors, the document has never been registered. So that was the subject of our case against them. We do
not understand the intransigencies we do not understand the refusal.427
In addition, the Court of Appeals correctly dismissed Philippine National Bank’s appeal because the issue raised involved
a question of law, specifically "whether or not mere entry in the Primary Entry Book is considered as registration of the
subject Certificate of Sale."428
Section 56 of Presidential Decree No. 1529 states:
SECTION 56. Primary Entry Book; Fees; Certified Copies. — Each Register of Deeds shall keep a primary entry book
in which, upon payment of the entry fee, he shall enter, in the order of their reception, all instruments including
copies of writs and processes filed with him relating to registered land. He shall, as a preliminary process in
registration, note in such book the date, hour and minute of reception of all instruments, in the order in which they
were received. They shall be regarded as registered from the time so noted, and the memorandum of each
instrument, when made on the certificate of title to which it refers, shall bear the same date: Provided, that the
national government as well as the provincial and city governments shall be exempt from the payment of such fees
in advance in order to be entitled to entry and registration. (Emphasis supplied)
In this case, Philippine National Bank filed the Sheriff’s Provisional Certificate of Sale, which was duly approved by the
Executive Judge, before the Registry of Deeds of Davao City. Entries were made in the Primary Entry Book. Hence, the
Sheriff’s Provisional Certificate of Sale should be considered registered.
90
Autocorp Group and Autographics, Inc. involved an extrajudicial foreclosure of mortgaged property and the registration
of a Sheriff’s Certificate of Sale. Autocorp sought the issuance of a writ of injunction "to prevent the register of deeds
from registering the subject certificate of sale[.]"429
This court explained that a Sheriff’s Certificate of Sale is an involuntary instrument and that a writ of injunction will no
longer lie because of the following reasons:
[F]or the registration of an involuntary instrument, the law does not require the presentation of the owner’s duplicate
certificate of title and considers the annotation of such instrument upon the entry book, as sufficient to affect the
real estate to which it relates.
It is a ministerial duty on the part of the Register of Deeds to annotate the instrument on the certificate of sale after
a valid entry in the primary entry book.1awp++i1 P.D. No. 1524 provides:
SEC. 63. Foreclosure of Mortgage. — x x x
(b) If the mortgage was foreclosed extrajudicially, a certificate of sale executed by the officer who conducted the
sale shall be filed with the Register of Deeds who shall make a brief memorandum thereof on the certificate of
title.
In fine, petitioner’s prayer for the issuance of a writ of injunction, to prevent the register of deeds from registering
the subject certificate of sale, had been rendered moot and academic by the valid entry of the instrument in the
primary entry book. Such entry is equivalent to registration.430 (Emphasis supplied, citation omitted)
Based on the records of this case, the Sheriff’s Certificate of Sale filed by Philippine National Bank was already recorded
in the Primary Entry Book.
The refusal of the Register of Deeds to annotate the registration on the titles of the properties should not affect
Philippine National Bank’s right to possess the properties.
As to the argument that Philippine National Bank admitted in open court that the Certificate of Sale was not registered,
it is evident from Spouses Limso and Davao Sunrise’s Memorandum that Philippine National Bank immediately
explained that the non-registration was due to the Register of Deeds’ refusal. Thus, the alleged non-registration was
not due to Philippine National Bank’s fault.
It appears on record that Philippine National Bank already complied with the requirements for registration. Thus, there
was no reason for the Register of Deeds to persistently refuse the registration of the Certificate of Sale.
At any rate, the Land Registration Authority stated in its Resolution in Administrative Case No. 02-13 that Atty. Patriarca
herself admitted that she already affixed her signature on the annotation at the back of the certificate of titles, and
that she subsequently erased her signature.431 This finding of fact in the administrative case supports the argument of
Philippine National Bank and the opinion of the Office of the Solicitor General that the Certificate of Sale should be
considered registered.
With regard to the issue of whether Philippine National Bank is entitled to a writ of possession, the trial court in Other
Case No. 124 2002 denied the application for the writ of possession and explained:
Portion of Sec. 47 of RA No. 8791 is quoted:
x x x the purchaser at the auction sale concerned whether in a judicial or extra judicial foreclosure shall have the
right to enter upon and take possession of such property immediately after the date of the confirmation of the
auction sale and administer the same in accordance with law x x x.
From the quoted provision, one can readily conclude that before the sale is confirmed, it is not considered final or
perfected to entitle the purchaser at the auction sale to the writ of possession as a matter of right. .
 In extra-judicial foreclosure, there is technically no confirmation of the auction sale in the manner provided for by
Sec. 7 of Rule 68. The process though involves an application, preparation of the notice of extrajudicial sale, the
extra-judicial foreclosure sale, issuance of the certificate of sale, approval of the Executive Judge or in the latter’s
absence, the Vice-Executive Judge and the registration of the certificate of sale with the Register of Deeds.
While it may be true that as found by the CA in the case earlier cited that DSIDC had only until January 24, 2001 to
redeem its properties and that the registration of the certificate of foreclosure sale is no longer relevant in the
reckoning of the redemption period, for purposes of the issuance of the writ of possession, petitioner to this Court’s
belief should complete the entire process in extra-judicial foreclosure. Otherwise the sale may not be considered
perfected and the application for writ of possession may be denied.
The records disclose that contrary to petitioner’s claim, the Certificate of Sale covering the subject properties has not
been registered with the Registry of Deeds of Davao City as the Court finds no annotation thereof. As such, the sale
is not considered perfected to entitle petitioner to the writ of possession as a matter of right.
Accordingly, for reason stated, the petition is DISMISSED. With the dismissal of the petition, PNB’s Motion for
Reception and Admission of PNB’s Ex-parte Testimonial and Documentary Evidence is DENIED.
However, Philippine National Bank is applying for the writ of possession on the ground that it is the winning bidder
during the auction sale, and not because it consolidated titles in its name. As such, the applicable provisions of law are
Section 47 of Republic Act No. 8791433 and Section 7 of Act No. 3135.434
Section 47 of Republic Act No. 8791 provides:
SECTION 47. Foreclosure of Real Estate Mortgage. — In the event of foreclosure, whether judicially or
extrajudicially, of any mortgage on real estate which is security for any loan or other credit accommodation granted,
the mortgagor or debtor whose real property has been sold for the full or partial payment of his obligation shall
have the right within one year after the sale of the real estate, to redeem the property by paying the amount due
under the mortgage deed, with interest thereon at the rate specified in the mortgage, and all the costs and expenses
incurred by the bank or institution from the sale and custody of said property less the income derived
therefrom. However, the purchaser at the auction sale concerned whether in a judicial or extrajudicial foreclosure
shall have the right to enter upon and take possession of such property immediately after the date of the
confirmation of the auction sale and administer the same in accordance with law. Any petition in court to enjoin or
restrain the conduct of foreclosure proceedings instituted pursuant to this provision shall be given due course only
upon the filing by the petitioner of a bond in an amount fixed by the court conditioned that he will pay all the
damages which the bank may suffer by the enjoining or the restraint of the foreclosure proceeding.
Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an extrajudicial foreclosure,
shall have the right to redeem the property in accordance with this provision until, but not after, the registration
of the certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three
(3) months after foreclosure, whichever is earlier. Owners of property that has been sold in a foreclosure sale prior
to the effectivity of this Act shall retain their redemption rights until their expiration. (Emphasis supplied)
Section 7 of Act No. 3135 provides:
SECTION 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance
of the province or place where the property or any part thereof is situated, to give him possession thereof during the
redemption period, furnishing bond in an amount equivalent to the use of the property for a period of twelve months,
to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without
complying with the requirements of this Act. Such petition shall be made under oath and filed in form of an ex parte
motion in the registration or cadastral proceedings if the property is registered, or in special proceedings in the case
of property registered under the Mortgage Law or under section one hundred and ninety-four of the Administrative
Code, or of any other real property encumbered with a mortgage duly registered in the office of any register of deeds
in accordance with any existing law, and in each case the clerk of the court shall, upon the filing of such petition,
91
collect the fees specified in paragraph eleven of section one hundred and fourteen of Act Numbered Four hundred
and ninety-six, as amended by Act Numbered Twenty-eight hundred and sixty-six, and the court shall, upon approval
of the bond, order that a writ of possession issue, addressed to the sheriff of the province in which the property is
situated, who shall execute said order immediately.1avvphi1
The rule under Section 7 of Act No. 3135 was restated in Nagtalon v. United Coconut Planters Bank:435
During the one-year redemption period, as contemplated by Section 7 of the above-mentioned law, a purchaser may
apply for a writ of possession by filing an ex parte motion under oath in the registration or cadastral proceedings if
the property is registered, or in special proceedings in case the property is registered under the Mortgage Law. In
this case, a bond is required before the court may issue a writ of possession. 436
On the other hand, a writ of possession may be issued as a matter of right when the title has been consolidated in the
buyer’s name due to nonredemption by the mortgagor. Under this situation, the basis for the writ of possession is
ownership of the property.437
The Sheriff’s Provisional Certificate of Sale should be deemed registered. However, Philippine National Bank must still
file a bond before the writ of possession may be issued.
VI
To fully dispose of all the issues in these consolidated cases, this court shall also rule on one of the issues raised in
G.R. No. 158622. In G.R. No. 158622, Spouses Limso and Davao Sunrise allege that the Sheriff’s Provisional Certificate
of Sale does not state the appropriate redemption period; thus, they filed a Petition for Declaratory Relief, which was
docketed as Civil Case No. 29,036-2002.438
In the loan agreement, natural and juridical persons are co-debtors, while the properties mortgaged to secure the loan
are owned by Davao Sunrise.
Act No. 3135 provides that the period of redemption is one (1) year after the sale. 439 On the other hand, Republic Act
No. 8791 provides a shorter period of three (3) months to redeem in cases involving juridical persons. 440
We rule that the period of redemption for this case should be not more than three (3) months in accordance with
Section 47 of Republic Act No. 8791. The mortgaged properties are all owned by Davao Sunrise. Section 47 of Republic
Act No. 8791 states: "the mortgagor or debtor whose real property has been sold" and "juridical persons whose property
is being sold[.]" Clearly, the law itself provides that the right to redeem belongs to the owner of the property mortgaged.
As the mortgaged properties all belong to Davao Sunrise, the shorter period of three (3) months is the applicable
redemption period.
The policy behind the shorter redemption period was explained in Goldenway Merchandising Corporation v. Equitable
PCI Bank:441
The difference in the treatment of juridical persons and natural persons was based on the nature of the properties
foreclosed—whether these are used as residence, for which the more liberal one-year redemption period is retained,
or used for industrial or commercial purposes, in which case a shorter term is deemed necessary to reduce the period
of uncertainty in the ownership of property and enable mortgagee-banks to dispose sooner of these acquired assets.
It must be underscored that the General Banking Law of 2000, crafted in the aftermath of the 1997 Southeast Asian
financial crisis, sought to reform the General Banking Act of 1949 by fashioning a legal framework for maintaining a
safe and sound banking system. In this context, the amendment introduced by Section 47 embodied one of such
safe and sound practices aimed at ensuring the solvency and liquidity of our banks. 442 (Citation omitted)
To grant a longer period of redemption on the ground that a co-debtor is a natural person defeats the purpose of
Republic Act No. 8791. In addition, the real properties mortgaged by Davao Sunrise appear to be used for commercial
purposes.443
WHEREFORE, the Petition for Review on Certiorari in G.R. No. 173194 is DENIED.
The Petition docketed as G.R. No. 196958 is PARTIALLY GRANTED, while the Petition docketed as G.R. No. 197120
is DENIED.
The Decision of the Court of Appeals in CA-G.R. CV No. 79732-MIN is AFFIRMED with MODIFICATION.
The Conversion, Restructuring and Extension Agreement executed in 1999 is deemed to have novated the Credit
Agreement and Loan Agreement executed in 1993. Thus, the principal loan obligation of Davao Sunrise Investment
and Development Corporation and Spouses Robert Alan and Nancy Limso shall be computed on the basis of the amounts
indicated in the Conversion, Restructuring and Extension Agreement.
Interest on the principal loan obligation shall be at the rate of 12% per annum and computed from January 28, 1999,
the date of the execution of the Conversion, Restructuring and Extension Agreement. Interest rate on the conventional
interest shall be at the rate of 12% per annum from August 21, 2000, the date of judicial demand, to June 30, 2013.
From July 1, 2013 until full satisfaction, the interest rate on the conventional interest shall be computed at 6% per
annum in view of this court’s ruling in Nacar v. Gallery Frames.444
This case is ordered REMANDED to Branch 17 of the Regional Trial Court of Davao City for the computation of the
total amount of Davao Sunrise Investment and Development Corporation and Spouses Robert Alan and Nancy Limso's
remaining obligation.
The Petition docketed as G.R. No. 205463 is PARTIALLY GRANTED. The Sheriffs Provisional Certificate of Sale is
deemed to have been registered. In view of the facts of this case, the applicable period of redemption shall be three
(3) months as provided under Republic Act No. 8791.
In case the final computation shows that Davao Sunrise Investment and Development Corporation and Spouses Robert
Alan and Nancy Limso overpaid Philippine National Bank, Philippine National Bank must return the excess amount.
The writ of possession prayed for by Philippine National Bank may only be issued after all the requirements for the
issuance of a writ of possession are complied with.
92
G.R. No. 119850 June 20, 1996
MANDARIN VILLA, INC., petitioner,
vs.
COURT OF APPEALS, and CLODUALDO DE JESUS, respondents.
In the evening of October 19, 1989, private respondent, Clodualdo de Jesus, a practicing lawyer and businessman,
hosted a dinner for his friends at the petitioner's restaurant, the Mandarin Villa Seafoods Village Greenhills,
Mandaluyong City. After dinner the waiter handed to him the bill in the amount of P2,658.50. Private respondent offered
to pay the bill through his credit card issued by Philippine Commercial Credit Card Inc. (BANKARD). This card was
accepted by the waiter who immediately proceeded to the restaurant's cashier for card verification. Ten minutes later,
however, the waiter returned and audibly informed private respondent that his credit card had expired. 1 Private
respondent remonstrated that said credit card had yet to expire on September 1990, as embossed on its face. 2 The
waiter was unmoved, thus, private respondent and two of his guests approached the restaurant's cashier who again
passed the credit card over the verification computer. The same information was produced, i.e., CARD EXPIRED. Private
respondent and his guests returned to their table and at this juncture, Professor Lirag, another guest, uttered the
following remarks: "Clody [referring to Clodualdo de Jesus], may problema ba? Baka kailangang maghugas na kami
ng pinggan?"3 Thereupon, private respondent left the restaurant and got his BPI Express Credit Card from his car and
offered it to pay their bill. This was accepted and honored by the cashier after verification. 4 Petitioner and his
companions left afterwards.
The incident triggered the filing of a suit for damages by private respondent. Following a full-dress trial, judgment was
rendered directing the petitioner and BANKARD to pay jointly and severally the private respondent: (a) moral damages
in the amount of P250,000.00; (b) exemplary damages in the amount of P100,000.00, and (c) attorney's fees and
litigation expenses in the amount of P50,000.00.
Both the petitioner and BANKARD appealed to the respondent Court of Appeals which rendered a decision, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED by:
1. Finding appellant MANDARIN solely responsible for damages in favor of appellee;
2. Absolving appellant BANKARD of any responsibility for damages;
3. Reducing moral damages awarded to appellee to TWENTY FIVE THOUSAND and 00/100 (P25,000.00) PESOS;
4. Reducing exemplary damages awarded to appellee to TEN THOUSAND and 00/100 (P10,000.00) PESOS;
5. Reversing and setting aside the award of P250,000.00 for attorney's fees as well as interest awarded, and
6. AFFIRMING the dismissal of all counterclaims and cross-claims.
Costs against appellant Mandarin.
Mandarin Villa, thus, interposed this present petition, faulting the respondent court with six (6) assigned errors which
may be reduced to the following issues, to wit: (1) whether or not petitioner is bound to accept payment by means of
credit card; (2) whether or not petitioner is negligent under the circumstances obtaining in this case; and (3) if
negligent, whether or not such negligence is the proximate cause of the private respondent's damage.
Petitioner contends that it cannot be faulted for its cashier's refusal to accept private respondent's BANKARD credit
card, the same not being a legal tender. It argues that private respondent's offer to pay by means of credit card partook
of the nature of a proposal to novate an existing obligation for which petitioner, as creditor, must first give its consent
otherwise there will be no binding contract between them. Petitioner cannot seek refuge behind this averment.
We note that Mandarin Villa Seafood Village is affiliated with BANKARD. In fact, an "Agreement" 6 entered into by
petitioner and BANKARD dated June 23, 1989, provides inter alia:
 The MERCHANT shall honor validly issued PCCCI credit cards presented by their corresponding holders in the purchase
of goods and/or services supplied by it provided that the card expiration date has not elapsed and the card number
does not appear on the latest cancellation bulletin of lost, suspended and canceled PCCCI credit cards and, no signs
of tampering, alterations or irregularities appear on the face of the credit card.7
While private respondent, may not be a party to the said agreement, the above-quoted stipulation conferred a favor
upon the private respondent, a holder of credit card validly issued by BANKARD. This stipulation is a stipulation pour
autri and under Article 1311 of the Civil Code private respondent may demand its fulfillment provided he communicated
his acceptance to the petitioner before its revocation.8 In this case, private respondent's offer to pay by means of his
BANKARD credit card constitutes not only an acceptance of the said stipulation but also an explicit communication of
his acceptance to the obligor.
In addition, the record shows that petitioner posted a logo inside Mandarin Villa Seafood Village stating that "Bankard
is accepted here.9 This representation is conclusive upon the petitioner which it cannot deny or disprove as against the
private respondent, the party relying thereon. Petitioner, therefore, cannot disclaim its obligation to accept private
respondent's BANKARD credit card without violating the equitable principle of estoppel. 10
Anent the second issue, petitioner insists that it is not negligent. In support thereof, petitioner cites its good faith in
checking, not just once but twice, the validity of the aforementioned credit card prior to its dishonor. It argues that
since the verification machine flashed an information that the credit card has expired, petitioner could not be expected
to honor the same much less be adjudged negligent for dishonoring it. Further, petitioner asseverates that it only
followed the guidelines and instructions issued by BANKARD in dishonoring the aforementioned credit card. The
argument is untenable.
any shadow of doubt that the expiry date embossed on the BANKARD was "SEP 90". (Exhibit "D".) A cursory look at
the appellee's BANKARD would also reveal that appellee had been as of that date a cardholder since 1982, a fact
which would have entitled the customer the courtesy of better treatment. 14
Petitioner, however, argues that private respondent's own negligence in not bringing with him sufficient cash was the
proximate cause of his damage. It likewise sought exculpation by contending that the remark of Professor Lirag 15 is a
supervening event and at the same time the proximate cause of private respondent's injury.
We find this contention also devoid of merit. While it is true that private respondent did not have sufficient cash on
hand when he hosted a dinner at petitioner's restaurant, this fact alone does not constitute negligence on his part.
Neither can it be claimed that the same was the proximate cause of private respondent's damage. We take judicial
notice 16 of the current practice among major establishments, petitioner included, to accept payment by means of
credit cards in lieu of cash. Thus, petitioner accepted private respondent's BPI Express Credit Card after verifying its
validity, 17 a fact which all the more refutes petitioner's imputation of negligence on the private respondent.
Neither can we conclude that the remark of Professor Lirag was a supervening event and the proximate cause of private
respondent's injury. The humiliation and embarrassment of the private respondent was brought about not by such a
remark of Professor Lirag but by the fact of dishonor by the petitioner of private respondent's valid BANKARD credit
card. If at all, the remark of Professor Lirag served only to aggravate the embarrassment then felt by private
respondent, albeit silently within himself.
WHEREFORE, the instant petition is hereby DISMISSED.

The test for determining the existence of negligence in a particular case may be stated as follows: Did the defendant
in doing the alleged negligent act use the reasonable care and caution which an ordinary prudent person would have
used in the same situation? If not, then he is guilty of negligence. 11 The Point of Sale (POS) Guidelines which outlined
the steps that petitioner must follow under the circumstances provides.

CARD EXPIRED
a. Check expiry date on card.
b. If unexpired, refer to CB.
b.1. If valid, honor up to maximum of SPL only.
b.2. If in CB as Lost, do procedures 2a to 2e.,
b.3. If in CB as Suspended/Cancelled, do not honor card.
c. If expired, do not honor card. 12

A cursory reading of said rule reveals that whenever the words CARD EXPIRED flashes on the screen of the verification
machine, petitioner should check the credit card's expiry date embossed on the card itself. If unexpired, petitioner
should honor the card provided it is not invalid, cancelled or otherwise suspended. But if expired, petitioner should not
honor the card. In this case, private respondent's BANKARD credit card has an embossed expiry date of September
1990. 13 Clearly, it has not yet expired on October 19, 1989, when the same was wrongfully dishonored by the
petitioner. Hence, petitioner did not use the reasonable care and caution which an ordinary prudent person would have
used in the same situation and as such petitioner is guilty of negligence. In this connection, we quote with approval
the following observations of the respondent Court.

Mandarin argues that based on the POS Guidelines (supra), it has three options in case the verification machine
flashes "CARD EXPIRED". It chose to exercise option (c) by not honoring appellee's credit card. However, appellant
apparently intentionally glossed over option "(a) Check expiry date on card" (id.) which would have shown without

93
G.R. No. 119107 March 18, 2005
JOSE V. LAGON, Petitioner,
vs.
HONORABLE COURT OF APPEALS and MENANDRO V. LAPUZ, respondents.
On June 23, 1982, petitioner Jose Lagon purchased from the estate of Bai Tonina Sepi, through an intestate court, 1 two
parcels of land located at Tacurong, Sultan Kudarat. A few months after the sale, private respondent Menandro Lapuz
filed a complaint for torts and damages against petitioner before the Regional Trial Court (RTC) of Sultan Kudarat.
In the complaint, private respondent, as then plaintiff, claimed that he entered into a contract of lease with the late
Bai Tonina Sepi Mengelen Guiabar over three parcels of land (the "property") in Sultan Kudarat, Maguindanao beginning
1964. One of the provisions agreed upon was for private respondent to put up commercial buildings which would, in
turn, be leased to new tenants. The rentals to be paid by those tenants would answer for the rent private respondent
was obligated to pay Bai Tonina Sepi for the lease of the land. In 1974, the lease contract ended but since the
construction of the commercial buildings had yet to be completed, the lease contract was allegedly renewed.
When Bai Tonina Sepi died, private respondent started remitting his rent to the court-appointed administrator of her
estate. But when the administrator advised him to stop collecting rentals from the tenants of the buildings he
constructed, he discovered that petitioner, representing himself as the new owner of the property, had been collecting
rentals from the tenants. He thus filed a complaint against the latter, accusing petitioner of inducing the heirs of Bai
Tonina Sepi to sell the property to him, thereby violating his leasehold rights over it.
In his answer to the complaint, petitioner denied that he induced the heirs of Bai Tonina to sell the property to him,
contending that the heirs were in dire need of money to pay off the obligations of the deceased. He also denied
interfering with private respondent's leasehold rights as there was no lease contract covering the property when he
purchased it; that his personal investigation and inquiry revealed no claims or encumbrances on the subject lots.
Petitioner claimed that before he bought the property, he went to Atty. Benjamin Fajardo, the lawyer who allegedly
notarized the lease contract between private respondent and Bai Tonina Sepi, to verify if the parties indeed renewed
the lease contract after it expired in 1974. Petitioner averred that Atty. Fajardo showed him four copies of the lease
renewal but these were all unsigned. To refute the existence of a lease contract, petitioner presented in court a
certification from the Office of the Clerk of Court confirming that no record of any lease contract notarized by Atty.
Fajardo had been entered into their files. Petitioner added that he only learned of the alleged lease contract when he
was informed that private respondent was collecting rent from the tenants of the building.
Finding the complaint for tortuous interference to be unwarranted, petitioner filed his counterclaim and prayed for the
payment of actual and moral damages.
On July 29, 1986, the court a quo found for private respondent (plaintiff below):
ACCORDINGLY, judgment is hereby rendered in favor of the plaintiff:
1. Declaring the "Contract of Lease" executed by Bai Tonina Sepi Mangelen Guiabar in favor of the plaintiff on
November 6, 1974 (Exh. "A" and "A-1") over Lot No. 6395, Pls-73. Lot No 6396. Pls.-73. Lot No. 6399. 3ls-73, and
Lot no.9777-A. CSD-11-000076-D (Lot No. 3-A. 40124), all situated along Ledesma St., Tacurong, Sultan Kudarat,
which document was notarized by Atty. Benjamin S. Fajardo, Sr. and entered into his notarial register as Doc. No.
619. Page No. 24. Book No. II. Series of 1974, to be authentic and genuine and as such valid and binding for a
period of ten (10) years specified thereon from November 1, 1974 up to October 31, 1984;
94
2. Declaring the plaintiff as the lawful owner of the commercial buildings found on the aforesaid lots and he is
entitled to their possession and the collection (of rentals) of the said commercial buildings within the period covered
by this "Contract of Lease" in his favor;
3. Ordering the defendant to pay to the plaintiff the following:
a) Rentals of the commercial buildings on the lots covered by the "Contract of Lease" in favor of the plaintiff for
the period from October 1, 1978 up to October 31, 1984, including accrued interests in the total amount of Five
Hundred Six Thousand Eight Hundred Five Pesos and Fifty Six Centavos (P506, 850.56), the same to continue to
bear interest at the legal rate of 12% per annum until the whole amount is fully paid by the defendant to the
plaintiff;
b) Moral damages in the amount of One Million Sixty Two Thousand Five Hundred Pesos (P1,062,500.00);
c) Actual or compensatory damages in the amount of Three Hundred Twelve Thousand Five Hundred Pesos (P312,
500.00);
d) Exemplary or corrective damages in the amount of One Hundred Eighty Thousand Five Hundred Pesos
(P187,500.00)
e) Temperate or moderate damages in the amount of Sixty Two Thousand Five Hundred Pesos (P62,500.00);
f) Nominal damages in the amount of Sixty Two Thousand Five Hundred Pesos (P62,500.00);
g) Attorney's fees in the amount of One Hundred Twenty Five Thousand Pesos (P125,000.00);
h) Expenses of litigation in the amount of Sixty Two Thousand Five Hundred Pesos (P62,500.00);
i) Interest on the moral damages, actual or compensatory damages temperate or moderate damages, nominal
damages, attorney's fees and expenses of litigation in the amounts as specified hereinabove from May 24, 1982
up to June 27, 1986, in the total amount of Nine Hundred Thousand Pesos (P900,000.00); all of which will
continue to bear interests at a legal rate of 12% per annum until the whole amounts are fully paid by the
defendants to the plaintiffs;
4. For failure of the defendant to deposit with this Court all the rentals he had collected from the thirteen (13)
tenants or occupants of the commercial buildings in question, the plaintiff is hereby restored to the possession of
his commercial buildings for a period of seventy-three (73) months which is the equivalent of the total period for
which he was prevented from collecting the rentals from the tenants or occupants of his commercial buildings from
October 1, 1978 up to October 31, 1984, and for this purpose a Writ of Preliminary Injunction is hereby issued, but
the plaintiff is likewise ordered to pay to the defendant the monthly rental of Seven Hundred Pesos (P700.00) every
end of the month for the entire period of seventy three (73) months. This portion of the judgment should be
considered as a mere alternative should the defendant fail to pay the amount of Five Hundred Five Pesos and Fifty
Six Centavos (P506,805.56) hereinabove specified;
5. Dismissing the counterclaim interposed by the defendant for lack of merit;
6. With costs against the defendant.2
Petitioner appealed the judgment to the Court of Appeals.3 In a decision dated January 31, 1995,4 the appellate court
modified the assailed judgment of the trial court as follows:
a) The award for moral damages, compensatory damages, exemplary damages, temperate or moderate damages,
and nominal damages as well as expenses of litigation in the amount of P62,500.00 and interests under paragraph
3-a(a), (b), (c), (d), (e), (f), (g), (h), and (i) are deleted;
b) The award for attorney's fees is reduced to P30,000.00;
c) Paragraphs 1,2,5 and 6 are AFFIRMED;
d) Additionally, the defendant is hereby ordered to pay to the plaintiff by way of actual damages the sum
of P178,425.00 representing the amount of rentals he collected from the period of October 1978 to August 1983,
and minus the amount of P42,700.00 representing rentals due the defendant computed at P700.00 per month for
the period from August 1978 to August 1983, with interest thereon at the rate until the same is fully paid;
e) Paragraph 4 is deleted.5
Before the appellate court, petitioner disclaimed knowledge of any lease contract between the late Bai Tonina Sepi and
private respondent. On the other hand, private respondent insisted that it was impossible for petitioner not to know
about the contract since the latter was aware that he was collecting rentals from the tenants of the building. While the
appellate court disbelieved the contentions of both parties, it nevertheless held that, for petitioner to become liable for
damages, he must have known of the lease contract and must have also acted with malice or bad faith when he bought
the subject parcels of land.
Via this petition for review, petitioner cites the following reasons why the Court should rule in his favor:
1. The Honorable Court of Appeals seriously erred in holding that petitioner is liable for interference of contractual
relation under Article 1314 of the New Civil Code;
2. The Honorable Court of Appeals erred in not holding that private respondent is precluded from recovering, if at all,
because of laches;
3. The Honorable Court of Appeals erred in holding petitioner liable for actual damages and attorney's fees, and;
4. The Honorable Court of Appeals erred in dismissing petitioner's counterclaims. 6
Article 1314 of the Civil Code provides that any third person who induces another to violate his contract shall be liable
for damages to the other contracting party. The tort recognized in that provision is known as interference with
contractual relations.7 The interference is penalized because it violates the property rights of a party in a contract to
reap the benefits that should result therefrom.8
The core issue here is whether the purchase by petitioner of the subject property, during the supposed existence of
private respondent's lease contract with the late Bai Tonina Sepi, constituted tortuous interference for which petitioner
should be held liable for damages.
The Court, in the case of So Ping Bun v. Court of Appeals,9 laid down the elements of tortuous interference with
contractual relations: (a) existence of a valid contract; (b) knowledge on the part of the third person of the existence
of the contract and (c) interference of the third person without legal justification or excuse. In that case, petitioner So
Ping Bun occupied the premises which the corporation of his grandfather was leasing from private respondent, without
the knowledge and permission of the corporation. The corporation, prevented from using the premises for its business,
sued So Ping Bun for tortuous interference.
As regards the first element, the existence of a valid contract must be duly established. To prove this, private
respondent presented in court a notarized copy of the purported lease renewal. 10 While the contract appeared as duly
notarized, the notarization thereof, however, only proved its due execution and delivery but not the veracity of its
contents. Nonetheless, after undergoing the rigid scrutiny of petitioner's counsel and after the trial court declared it to
be valid and subsisting, the notarized copy of the lease contract presented in court appeared to be incontestable proof
that private respondent and the late Bai Tonina Sepi actually renewed their lease contract. Settled is the rule that until
overcome by clear, strong and convincing evidence, a notarized document continues to be prima facie evidence of the
facts that gave rise to its execution and delivery.11
The second element, on the other hand, requires that there be knowledge on the part of the interferer that the contract
exists. Knowledge of the subsistence of the contract is an essential element to state a cause of action for tortuous
interference.12 A defendant in such a case cannot be made liable for interfering with a contract he is unaware of. 13 While
it is not necessary to prove actual knowledge, he must nonetheless be aware of the facts which, if followed by a
reasonable inquiry, will lead to a complete disclosure of the contractual relations and rights of the parties in the
contract.14
In this case, petitioner claims that he had no knowledge of the lease contract. His sellers (the heirs of Bai Tonina Sepi)
likewise allegedly did not inform him of any existing lease contract.
After a careful perusal of the records, we find the contention of petitioner meritorious. He conducted his own personal
investigation and inquiry, and unearthed no suspicious circumstance that would have made a cautious man probe
95
deeper and watch out for any conflicting claim over the property. An examination of the entire property's title bore no
indication of the leasehold interest of private respondent. Even the registry of property had no record of the same. 15
Assuming ex gratia argumenti that petitioner knew of the contract, such knowledge alone was not sufficient to make
him liable for tortuous interference. Which brings us to the third element. According to our ruling in So Ping Bun,
petitioner may be held liable only when there was no legal justification or excuse for his action16 or when his conduct
was stirred by a wrongful motive. To sustain a case for tortuous interference, the defendant must have acted with
malice17 or must have been driven by purely impious reasons to injure the plaintiff. In other words, his act of
interference cannot be justified.18
Furthermore, the records do not support the allegation of private respondent that petitioner induced the heirs of Bai
Tonina Sepi to sell the property to him. The word "induce" refers to situations where a person causes another to choose
one course of conduct by persuasion or intimidation.19 The records show that the decision of the heirs of the late Bai
Tonina Sepi to sell the property was completely of their own volition and that petitioner did absolutely nothing to
influence their judgment. Private respondent himself did not proffer any evidence to support his claim. In short, even
assuming that private respondent was able to prove the renewal of his lease contract with Bai Tonina Sepi, the fact
was that he was unable to prove malice or bad faith on the part of petitioner in purchasing the property. Therefore,
the claim of tortuous interference was never established.
In So Ping Bun, the Court discussed whether interference can be justified at all if the interferer acts for the sole purpose
of furthering a personal financial interest, but without malice or bad faith. As the Court explained it:
x x x, as a general rule, justification for interfering with the business relations of another exists where the actor's
motive is to benefit himself. Such justification does not exist where the actor's motive is to cause harm to the other.
Added to this, some authorities believe that it is not necessary that the interferer's interest outweigh that of the party
whose rights are invaded, and that an individual acts under an economic interest that is substantial, not merely de
minimis, such that wrongful and malicious motives are negatived, for he acts in self-protection. Moreover, justification
for protecting one's financial position should not be made to depend on a comparison of his economic interest in the
subject matter with that of the others. It is sufficient if the impetus of his conduct lies in a proper business interest
rather than in wrongful motives.20
The foregoing disquisition applies squarely to the case at bar. In our view, petitioner's purchase of the subject property
was merely an advancement of his financial or economic interests, absent any proof that he was enthused by improper
motives. In the very early case of Gilchrist v. Cuddy, 21 the Court declared that a person is not a malicious interferer if
his conduct is impelled by a proper business interest. In other words, a financial or profit motivation will not necessarily
make a person an officious interferer liable for damages as long as there is no malice or bad faith involved.
In sum, we rule that, inasmuch as not all three elements to hold petitioner liable for tortuous interference are present,
petitioner cannot be made to answer for private respondent's losses.
This case is one of damnun absque injuria or damage without injury. "Injury" is the legal invasion of a legal right while
"damage" is the hurt, loss or harm which results from the injury.22 In BPI Express Card Corporation v. Court of
Appeals,,23 the Court turned down the claim for damages of a cardholder whose credit card had been cancelled by
petitioner corporation after several defaults in payment. We held there that there can be damage without injury where
the loss or harm is not the result of a violation of a legal duty. In that instance, the consequences must be borne by
the injured person alone since the law affords no remedy for damages resulting from an act which does not amount to
legal injury or wrong.24 Indeed, lack of malice in the conduct complained of precludes recovery of damages.25
With respect to the attorney's fees awarded by the appellate court to private respondent, we rule that it cannot be
recovered under the circumstances. According to Article 2208 of the Civil Code, attorney's fees may be awarded only
when it has been stipulated upon or under the instances provided therein.26 Likewise, being in the concept of actual
damages, the award for attorney's fees must have clear, factual and legal bases27 which, in this case, do not exist.
Regarding the dismissal of petitioner's counterclaim for actual and moral damages, the appellate court affirmed the
assailed order of the trial court because it found no basis to grant the amount of damages prayed for by petitioner. We
find no reason to reverse the trial court and the Court of Appeals. Actual damages are those awarded in satisfaction
of, or in recompense for, loss or injury sustained. To be recoverable, they must not only be capable of proof but must
actually be proved with a reasonable degree of certainty. 28 Petitioner was unable to prove that he suffered loss or
injury, hence, his claim for actual damages must fail. Moreover, petitioner's prayer for moral damages was not
warranted as moral damages should result from the wrongful act of a person. The worries and anxieties suffered by a
party hailed to court litigation are not compensable.29
With the foregoing discussion, we no longer deem it necessary to delve into the issue of laches.
WHEREFORE, premises considered, the petition is hereby GRANTED. The assailed decision of the Court of Appeals is
hereby REVERSED and SET ASIDE.
96
G.R. No. 200901
SM INVESTMENTS CORPORATION, Petitioner
vs.
ESTELA MARFORI POSADAS, MARIA ELENA POSADAS AND AIDA MACARAIG POSADAS, Respondents
Before this Court is a Petition for Review1 filed by petitioner SM Investments Corporation (SMIC) assailing the
Decision2 dated 13 September 2011 of the Court of Appeals in CA-G.R. CV No. 91788, which decision, in turn, reversed
and set aside the Decision3 dated 18 December 2007 of the Regional Trial Court of Makati City (Trial Court) in Civil
Case No. 97-832.
Respondents Estela Marfori Posadas, Maria Elena Posadas and Aida Macaraig Posadas are the owners of several parcels
of land with a total area of 27.6 hectares, more or less, and covered by Transfer Certificates of Title Nos. S-37656,
158291 and 158292 of the Register of Deeds of Makati City (Subject Property).
On 08 August 1995, SMIC, through its President, Henry Sy, Jr. (Mr. Sy), sent respondents a written offer for a joint
venture for the development of the Subject Property, which in part reads:
Madames:
The undersigned offers a JOINT VENTURE with your realty of more or less 27.6 hectares at the Posadas Subdivision,
Sucat, Muntinlupa City, under the following terms:
1. Development of the entire area into a first class commercial/residential subdivision. Development of area
presently leased to Worldwide with an area of 2.6 hectares will be after expiration of lease on year 2002.
2. To set values for the property, the set price of ₱4,000.00 per square meter of areas fronting South Super Highway
and ₱1,500.00 per square meter for the rest of the area. After full development, the set price is ₱20,000.00 per
square meter of said front areas and ₱10,000.00 for the rest of the areas; with no sale of lots after development
for less than the set values herein stated above, except sale to our affiliate company.
3. The sharing of the Joint Venture Partners shall be 60/40 on your favour. The undersigned reserves his right of
first choice for a contiguous consolidated area indicated in plan attached herewith, for commercial/residential
development. You are granted a choice of your 60% share of developed areas thereafter. Areas used for open
spaces and streets required by law shall have no set values.
4. Upon execution of Joint Venture Agreement, the undersigned will pay you the amount of SEVENTY MILLION
PESOS (₱70,000,000.00), Philippine currency, as goodwill money over and above your 60% share in the Joint
Venture and the agents for this joint venture shall be given five percent (5%) of the goodwill payment as their full
commission.
5. In case you decide to avail of a third party to sell your lots from your 60% share, I will be given the priority to
exclusively sell the same, subject to terms and conditions that may be agreed upon.
The foregoing offer supersedes and revokes my previous offers and/or proposals. I hope you will favourably consider
the foregoing offer.4
On 18 August 1995, respondents sent SMIC a written counterproposal, which, in part, reads as follows:
Dear Mr. Sy Jr.:
Thank you for your interest in our property subject of your Joint Venture proposal dated August 8, 1995.
The terms mentioned in your proposal, except the goodwill money which we submit should be not less than EIGHTY
MILLION (₱80,000,000.00) PESOS, are acceptable in principle, subject however to our agreement on the specified
terms and conditions such as details of development, your plans and specifications therein, period of completion, use
of the area allocated to you in the Joint Venture and other details.
 If our counter-proposal of goodwill money of EIGHTY MILLION (₱80,000,000.00) PESOS is acceptable to you, upon
your presentation of the details as stated above, upon our agreement on the same, we will be ready to sign a Joint
Venture Agreement with your goodself.5
On 24 August 1995, SMIC, through Mr. Sy, Jr., sent respondents another letter containing its acceptance of the counter-
offer of respondents, which reads as follows:
Dear Mesdames:
This is to signify acceptance of your counter proposal of goodwill money in the amount of EIGHTY MILLION PESOS
(₱80,000,000.00), Philippine currency, as contained in your letter of August 18, 1995, for the development of your
property in Sucat, Paranaque, subject to the condition that the said amount of goodwill money will be paid and
tendered to you upon your signing of the Joint Venture Agreement.6
On 02 December 1995, SMIC, in compliance with what it considered as a perfected contract for the joint venture,
sent respondents four (4) drawings of the proposed mall and its location within the Subject Property.
However, on 06 December 1995, after receiving the aforementioned drawings, respondents sent SMIC a letter
informing it that they had received several other offers for the Subject Property, and demanding that SMIC better the
said offers, before they submit their comments on the drawings. The said letter reads:
Dear Mr. Sy Jr.:
By reason of your failure since August 24, 1995 to present to us the "specified terms and conditions on the details of
development" of the 27.6 hectares subject of your offer, up to the present, specifically "its plans and specifications,
period of completion, use of allocated area and other details" we have not been able to finalize or even negotiate in
the proposed Joint Venture Agreement.
In the interim period of your silence (from August 24, 1995 to December 1, 1995) which indicated lack interest on
your part to pursue your offer, various parties submitted offers on the 27.6 hectares, amongst which are:
a.) Offer of ₱120 Million goodwill on the 27.5 hectares plus 60% of the proceeds from [the] sale of the developed
lots of the 27.5 hectares, with the option to submit offers on the vertical development of the entire 27.6 hectares;
b.) Offer to purchase 7.2 hectares of the 27.6 hectares at the price of ₱10,000.00 per square meter on CASH
BASIS, with the undertaking to construct a giant commercial complex on the same; and
c.) Offer to purchase 5.48 hectares of the 27.6 hectares at the price of P5,000.00 per square meter with ₱10 Million
downpayment with undertaking to construct a giant structure to cater on the "warehouse concept of marketing";
all of which are now under negotiation.
Last Saturday, December 2, 1995, your representative delivered four (4) drawings of your proposed Mall (on the 2.3
hectares with the balance devoted to parking) on your choice area (more or less 8 to 9 hectares) which did not
include any plans and specifications of development of the 27.6 hectares.
Considering the various offers presented to us while waiting for your 'plans and specifications of development of the
27.6 hectares' which you have not presented up to now, unless you submit a better offer, there is no need to comment
on your drawings.7 (Underlining supplied)
On 27 February 1996, SMIC sent respondents a letter, which reads as follows:
Madames (sic):
The undersigned reiterates our previous offer for a Joint Venture with you on your 27.6 hectares property at Posadas
Subdivision, Sucat, Muntinlupa City, under the following revised terms:
As earlier conveyed to you, we will develop the subject property into a first class mixed commercial/residential
subdivision and we propose a 60/40 sharing in your favor. The undersigned reserves his right of first choice for a
contiguous consolidated area which we will developed (sic) into mixed use development.
97
Upon execution of the Joint Venture agreement, the undersigned will pay you One Hundred Forty Million Pesos
(₱140,000.00) as goodwill money over and above your sixty (60%) percent share in the Joint Venture.
In case you decide to avail of a third party to sell your lots from your sixty (60%) percent share, I will be given the
priority to exclusively sell same subject to the terms and condition that may be agreed upon.
If the foregoing terms and conditions is (sic) acceptable to you please signify your conformity on the space provided
herein below.8
Thereafter, on 21 August 1996, SMIC, through counsel, sent respondents a letter reminding them to respect the joint
venture agreement for the development of the Subject Property.
It appearing that respondents were not willing to honor the joint venture agreement, SMIC, on 21 April 1997, filed Civil
Case No. 97-832, a case for Specific Performance and Damages with Prayer for Temporary Restraining Order and Writ
of Preliminary Injunction against respondents.
After conducting a full-blown hearing on the merits, the Trial Court, on 18 December 2007, promulgated its Decision,
the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered: (a) declaring the existence, validity and
enforceability of the contract between [SMIC and respondents] under the terms and conditions embodied in the
letters dated 08, 18 & 24 August 1995 for the development of the subject property and ordering the said
[respondents] to faithfully comply with the terms and conditions thereof, particularly to work out with [SMIC], in
good faith, the details, plans and specifications of developments of the subject property, and upon agreement
thereon, to execute the formal Joint Venture Agreement; (b) ordering said [respondents] to pay [SMIC] the sum of
₱500,000.00 for attorney's fees and litigation expenses.9
Aggrieved by the above-mentioned decision, respondents appealed the same to the Court of Appeals. 10
On 13 September 2011, the Court of Appeals promulgated its Decision reversing and setting aside the Decision of the
Trial Court, the dispositive portion of which reads:
WHEREFORE, premises considered, the instant appeal is hereby GRANTED. The assailed Decision dated December
18, 2007 is hereby REVERSED and SET ASIDE. The complaint in Civil Case No. 97-382 for Specific Performance
and Damages with Prayer for Temporary Restraining Order and Writ of Preliminary Injunction is DISMISSED for lack
of merit.11
Thus, SMIC filed this Petition where it attributed grave and serious errors in judgment on the part of the Court of
Appeals when it made the following findings:
a. There was no perfected contract between SMIC and respondents;
b. The lack of agreement on details and plans of development prevented the perfection of the contract;
c. The parties are still in the negotiation stage;
d. The Letter of 24 August 1995 embodied only a qualified acceptance on the part of SMIC; and
e. The Letter of 27 February 1996 constituted a new offer on the part of SMIC.12
In separate Comments,13 respondents refuted the aforestated assignment of errors, and contended that the exchange
of correspondences between SMIC and respondents, in fact, shows that no joint venture agreement for the development
of the Subject Property was perfected.
The records will show that, indeed, several correspondences were had between the parties and these constitute the
crux of the controversy in this case. It is, thus, incumbent upon Us to determine whether a contract for a joint venture
between the parties has, in fact, been perfected.
Inasmuch as the principal issues of this case, raised in the foregoing assignment of errors, are interrelated, we shall
proceed to jointly resolve the same.
We find the Petition to be impressed with merit.
It is basic in this jurisdiction that a contract is perfected by mere consent of the parties. Thus, Article 1315 of the Civil
Code provides:
Art. 1315. Contracts are perfected by mere consent and from that moment the parties are bound not only to the
fulfilment of what has been expressly stipulated but also to all the consequences which, according to their nature,
may be in keeping with good faith, usage and law.
In relation to the foregoing, Articles 1318 to 1320 of the Civil Code states the necessary requisites of a contract, to
wit:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
SECTION 1. CONSENT
Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which
are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance
constitutes a counter-offer,
Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The
contract, in such a case, is presumed to have been entered in the place where the offer was made.
Art. 1320. An acceptance may be express or implied.
Based on the above-mentioned provisions of law, we concur with the findings of the Trial Court that the facts in this
particular case show that a contract for a joint venture between the parties has, in fact, been perfected.
First, the Letter of 08 August 1995 embodies a complete offer on the part of SMIC in that it contained an object certain,
which is the joint venture for the development of the Subject Property, and a specific cause and/or consideration
therefor, which are the goodwill money in the amount of ₱70 Million, plus a 60/40 sharing, in favor of respondents of
the said development.
Second, the Letter dated 18 August 1995 in return embodies a complete counter-offer on the part of respondents in
that they conveyed their acceptance of the joint venture subject only to the counter-proposal to increase the goodwill
money from ₱70 Million to ₱80 Million.
Third, the Letter dated 24 August 1995 contains an unqualified, acceptance on the part of SMIC of the above-mentioned
counter-proposal of respondents, again on the aspect of the goodwill money alone.
At this point, following the above-quoted provisions of the Civil Code, particularly Articles 1318 and 1319 thereof, we
agree with the finding of the Trial Court that a joint venture agreement between the parties has been perfected, in that
98
(i) there is consent, or a meeting of the minds, (ii) there is an object certain, which is the joint venture, and (iii) there
is a cause and/or consideration, which are the goodwill money and specific sharing scheme.
The controversy arose when respondents sent SMIC the Letter of 6 December 1995, wherein the former stated that
they had received more lucrative offers for the Subject Property, noted a three (3)-month period of silence, on the part
of SMIC and concluded that the said silence was tantamount to a lack of interest on the part of SMIC. Significantly,
this particular letter of respondents immediately followed the submission by SMIC of certain drawings related to the
development. Lastly, and more importantly, respondents stated therein that unless SMIC submits a better offer, there
would simply be no need for respondents to comment on the said drawings SMIC sent.
The 6 December 1995 Letter of respondents did not have any effect on the perfected joint venture between the parties.
At best, the same letter may be considered as a mere proposal, on the part of respondents, to amend the consideration
of the joint venture. This is confirmed by the premise laid by respondents therein, particularly that they received better
offers from third parties for the purchase and/or development of the Subject Property, or portions thereof. We are all
but convinced that respondents were well aware and were acting with the knowledge that the joint venture agreement
had indeed been perfected. This is precisely the reason respondents were very careful with their language when they
insisted that unless SMIC would propose amending the Joint Venture to include better terms, respondents would
withhold their comments on the drawings. It would be important to note that respondents, in the said letter, did not,
in any way or manner, disavow the existence of the Joint Venture.
Further, respondents, in arguing that a perfected joint venture agreement does not exist, rely on the statement they
made in the letter of 18 August 1995, which states "subject however to our agreement on the specified terms and
conditions such as details of development, your plans and specifications therein, period of completion, use of the area
allocated to you in the Joint Venture and other details" However, the same, as correctly pointed out by the Trial Court,
is not a condition precedent for the perfection of the joint venture agreement.
In Swedish Match, AB v. Court of Appeals,14 we explained the stages of a contract, thus:
In general, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and consummation.
Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends
at the moment of agreement of the parties. Perfection or birth of the contract takes place when the parties agree
upon the essential elements of the contract. Consummation occurs when the parties fulfill or perform the terms
agreed upon in the contract, culminating in the extinguishment thereof.15
In this case, the first and second stage of the contract had been fulfilled. Negotiations took place when the parties
made their exchange of correspondences until the letter of 24 August 1995. The perfection of the contract came
thereafter, when SMIC, through the letter of 24 August 1995, accepted the counter-offer of respondents in their letter
of 18 August 1995.
The same statement of respondents in said letter of 18 August 1995 already deals with the consummation stage of the
contract, wherein the parties fulfill or perform the terms agreed upon in the contract. Verily, the details of the
development of the Subject Property, particularly the plans and specifications of the same shall come only after the
parties have already agreed to enter into a joint venture agreement to develop the same. In other words, the said
plans and specifications are but the result of the perfected contract; these were done in execution of the perfected
contract.
We agree with the Trial Court that the development of a first class commercial/residential subdivision in a 27.6 hectare
property is a complex project, which involves a careful and meticulous preparation of the plans and specifications
thereof. And, SMIC for its part have already exerted efforts and incurred cost for the preparation of the above-
mentioned drawings, in the implementation of the joint venture agreement.1a⍵⍴h!1
The fact that the above-mentioned drawings came three and a half (3 1/2) months after the joint venture agreement
was perfected is not a valid cause for respondents to unilaterally back out from the same. We note that nowhere in the
records does it appear that SMIC was given a specific period within which to submit drawings and/or plans. Neither do
the records show that respondents corresponded with SMIC to follow up on the same. On the contrary, the records will
show that respondents tried to solicit more favourable terms from SMIC, after they received the drawings.
Anent the increase in the goodwill money to the amount of ₱140 million, subject of the 27 February 1996 letter of
SMIC, suffice it to say that We concur with the finding of the Trial Court that the same was merely to appease
respondents, who were lured by subsequent offers from other parties, and to dissuade respondents from violating or
unjustifiably withdrawing from their subsisting contract with SMIC. This finding was supported by the testimony of
respondent Ma. Elena Posadas, who admitted that the "better offer" they were asking SMIC to submit referred only to
the goodwill money.16 It is a hornbook doctrine that findings of fact of trial courts are entitled to great weight on appeal
and should not be disturbed except for strong and valid reasons because the trial court is in a better position to examine
the demeanor of the witnesses while testifying. It is not a function of this Court to analyze and weigh evidence by the
parties all over again.17
Indeed, the letter of SMIC of 27 February 1996 on the increased goodwill money was a post perfection matter, and
clearly, was for the purpose of having the issue of breach of the perfected contract settled without further ado.
In view of the foregoing, we affirm the finding of the Trial Court that there is a perfected joint venture agreement
between the parties for the development of the Subject Property. Therefore, the said perfected joint venture agreement
still stands. In this jurisdiction, obligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith.18
WHEREFORE, premises considered, the instant petition is hereby GRANTED. The assailed Decision dated 13
September 2011 is hereby REVERSED and SET ASIDE. The Decision dated 18 December 2007 of the Regional Trial
Court of Makati City in Civil Case No. 97-832 is hereby REINSTATED.
99
G. R. No. 158149 February 9, 2006
BOSTON BANK OF THE PHILIPPINES, (formerly BANK OF COMMERCE), Petitioner,
vs.
PERLA P. MANALO and CARLOS MANALO, JR., Respondents.
Before us is a Petition for Review on Certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 47458
affirming, on appeal, the Decision2 of the Regional Trial Court (RTC) of Quezon City, Branch 98, in Civil Case No. Q-
89-3905.
The Xavierville Estate, Inc. (XEI) was the owner of parcels of land in Quezon City, known as the Xavierville Estate
Subdivision, with an area of 42 hectares. XEI caused the subdivision of the property into residential lots, which was
then offered for sale to individual lot buyers.3
On September 8, 1967, XEI, through its General Manager, Antonio Ramos, as vendor, and The Overseas Bank of Manila
(OBM), as vendee, executed a "Deed of Sale of Real Estate" over some residential lots in the subdivision, including Lot
1, Block 2, with an area of 907.5 square meters, and Lot 2, Block 2, with an area of 832.80 square meters. The
transaction was subject to the approval of the Board of Directors of OBM, and was covered by real estate mortgages
in favor of the Philippine National Bank as security for its account amounting to ₱5,187,000.00, and the Central Bank
of the Philippines as security for advances amounting to ₱22,185,193.74. 4 Nevertheless, XEI continued selling the
residential lots in the subdivision as agent of OBM. 5
Sometime in 1972, then XEI president Emerito Ramos, Jr. contracted the services of Engr. Carlos Manalo, Jr. who was
in business of drilling deep water wells and installing pumps under the business name Hurricane Commercial, Inc. For
₱34,887.66, Manalo, Jr. installed a water pump at Ramos’ residence at the corner of Aurora Boulevard and Katipunan
Avenue, Quezon City. Manalo, Jr. then proposed to XEI, through Ramos, to purchase a lot in the Xavierville subdivision,
and offered as part of the downpayment the ₱34,887.66 Ramos owed him. XEI, through Ramos, agreed. In a letter
dated February 8, 1972, Ramos requested Manalo, Jr. to choose which lots he wanted to buy so that the price of the
lots and the terms of payment could be fixed and incorporated in the conditional sale. 6 Manalo, Jr. met with Ramos
and informed him that he and his wife Perla had chosen Lots 1 and 2 of Block 2 with a total area of 1,740.3 square
meters.
In a letter dated August 22, 1972 to Perla Manalo, Ramos confirmed the reservation of the lots. He also pegged the
price of the lots at ₱200.00 per square meter, or a total of ₱348,060.00, with a 20% down payment of the purchase
price amounting to ₱69,612.00 less the ₱34,887.66 owing from Ramos, payable on or before December 31, 1972; the
corresponding Contract of Conditional Sale would then be signed on or before the same date, but if the selling
operations of XEI resumed after December 31, 1972, the balance of the downpayment would fall due then, and the
spouses would sign the aforesaid contract within five (5) days from receipt of the notice of resumption of such selling
operations. It was also stated in the letter that, in the meantime, the spouses may introduce improvements thereon
subject to the rules and regulations imposed by XEI in the subdivision. Perla Manalo conformed to the letter agreement. 7
The spouses Manalo took possession of the property on September 2, 1972, constructed a house thereon, and installed
a fence around the perimeter of the lots.
In the meantime, many of the lot buyers refused to pay their monthly installments until they were assured that they
would be issued Torrens titles over the lots they had purchased.8 The spouses Manalo were notified of the resumption
of the selling operations of XEI.9 However, they did not pay the balance of the downpayment on the lots because Ramos
failed to prepare a contract of conditional sale and transmit the same to Manalo for their signature. On August 14,
1973, Perla Manalo went to the XEI office and requested that the payment of the amount representing the balance of
the downpayment be deferred, which, however, XEI rejected. On August 10, 1973, XEI furnished her with a statement
of their account as of July 31, 1973, showing that they had a balance of ₱34,724.34 on the downpayment of the two
lots after deducting the account of Ramos, plus ₱3,819.6810 interest thereon from September 1, 1972 to July 31, 1973,
and that the interests on the unpaid balance of the purchase price of ₱278,448.00 from September 1, 1972 to July 31,
1973 amounted to ₱30,629.28.11 The spouses were informed that they were being billed for said unpaid interests. 12
On January 25, 1974, the spouses Manalo received another statement of account from XEI, inclusive of interests on
the purchase price of the lots.13 In a letter dated April 6, 1974 to XEI, Manalo, Jr. stated they had not yet received the
notice of resumption of Lei’s selling operations, and that there had been no arrangement on the payment of interests;
hence, they should not be charged with interest on the balance of the downpayment on the property. 14 Further, they
demanded that a deed of conditional sale over the two lots be transmitted to them for their signatures. However, XEI
ignored the demands. Consequently, the spouses refused to pay the balance of the downpayment of the purchase
price.15
Sometime in June 1976, Manalo, Jr. constructed a business sign in the sidewalk near his house. In a letter dated June
17, 1976, XEI informed Manalo, Jr. that business signs were not allowed along the sidewalk. It demanded that he
remove the same, on the ground, among others, that the sidewalk was not part of the land which he had purchased
on installment basis from XEI.16 Manalo, Jr. did not respond. XEI reiterated its demand on September 15, 1977. 17
Subsequently, XEI turned over its selling operations to OBM, including the receivables for lots already contracted and
those yet to be sold.18 On December 8, 1977, OBM warned Manalo, Jr., that "putting up of a business sign is specifically
prohibited by their contract of conditional sale" and that his failure to comply with its demand would impel it to avail
of the remedies as provided in their contract of conditional sale. 19
Meanwhile, on December 5, 1979, the Register of Deeds issued Transfer Certificate of Title (TCT) No. T-265822 over
Lot 1, Block 2, and TCT No. T-265823 over Lot 2, Block 2, in favor of the OBM.20 The lien in favor of the Central Bank
of the Philippines was annotated at the dorsal portion of said title, which was later cancelled on August 4, 1980. 21
Subsequently, the Commercial Bank of Manila (CBM) acquired the Xavierville Estate from OBM. CBM wrote Edilberto
Ng, the president of Xavierville Homeowners Association that, as of January 31, 1983, Manalo, Jr. was one of the lot
buyers in the subdivision.22 CBM reiterated in its letter to Ng that, as of January 24, 1984, Manalo was a homeowner
in the subdivision.23
In a letter dated August 5, 1986, the CBM requested Perla Manalo to stop any on-going construction on the property
since it (CBM) was the owner of the lot and she had no permission for such construction.24 She agreed to have a
conference meeting with CBM officers where she informed them that her husband had a contract with OBM, through
XEI, to purchase the property. When asked to prove her claim, she promised to send the documents to CBM. However,
she failed to do so.25 On September 5, 1986, CBM reiterated its demand that it be furnished with the documents
promised,26 but Perla Manalo did not respond.
On July 27, 1987, CBM filed a complaint27 for unlawful detainer against the spouses with the Metropolitan Trial Court
of Quezon City. The case was docketed as Civil Case No. 51618. CBM claimed that the spouses had been unlawfully
occupying the property without its consent and that despite its demands, they refused to vacate the property. The
latter alleged that they, as vendors, and XEI, as vendee, had a contract of sale over the lots which had not yet been
rescinded.28
While the case was pending, the spouses Manalo wrote CBM to offer an amicable settlement, promising to abide by the
purchase price of the property (₱313,172.34), per agreement with XEI, through Ramos. However, on July 28, 1988,
CBM wrote the spouses, through counsel, proposing that the price of ₱1,500.00 per square meter of the property was
100
a reasonable starting point for negotiation of the settlement. 29 The spouses rejected the counter
proposal,30 emphasizing that they would abide by their original agreement with XEI. CBM moved to withdraw its
complaint31 because of the issues raised.32
In the meantime, the CBM was renamed the Boston Bank of the Philippines. After CBM filed its complaint against the
spouses Manalo, the latter filed a complaint for specific performance and damages against the bank before the Regional
Trial Court (RTC) of Quezon City on October 31, 1989.
The plaintiffs alleged therein that they had always been ready, able and willing to pay the installments on the lots sold
to them by the defendant’s remote predecessor-in-interest, as might be or stipulated in the contract of sale, but no
contract was forthcoming; they constructed their house worth ₱2,000,000.00 on the property in good faith; Manalo,
Jr., informed the defendant, through its counsel, on October 15, 1988 that he would abide by the terms and conditions
of his original agreement with the defendant’s predecessor-in-interest; during the hearing of the ejectment case on
October 16, 1988, they offered to pay ₱313,172.34 representing the balance on the purchase price of said lots; such
tender of payment was rejected, so that the subject lots could be sold at considerably higher prices to third parties.
Plaintiffs further alleged that upon payment of the ₱313,172.34, they were entitled to the execution and delivery of a
Deed of Absolute Sale covering the subject lots, sufficient in form and substance to transfer title thereto free and clear
of any and all liens and encumbrances of whatever kind and nature. 33 The plaintiffs prayed that, after due hearing,
judgment be rendered in their favor, to wit:
WHEREFORE, it is respectfully prayed that after due hearing:
(a) The defendant should be ordered to execute and deliver a Deed of Absolute Sale over subject lots in favor of
the plaintiffs after payment of the sum of ₱313,172.34, sufficient in form and substance to transfer to them titles
thereto free and clear of any and all liens and encumbrances of whatever kind or nature;
(b) The defendant should be held liable for moral and exemplary damages in the amounts of ₱300,000.00 and
₱30,000.00, respectively, for not promptly executing and delivering to plaintiff the necessary Contract of Sale,
notwithstanding repeated demands therefor and for having been constrained to engage the services of undersigned
counsel for which they agreed to pay attorney’s fees in the sum of ₱50,000.00 to enforce their rights in the premises
and appearance fee of ₱500.00;
(c) And for such other and further relief as may be just and equitable in the premises. 34
In its Answer to the complaint, the defendant interposed the following affirmative defenses: (a) plaintiffs had no cause
of action against it because the August 22, 1972 letter agreement between XEI and the plaintiffs was not binding on
it; and (b) "it had no record of any contract to sell executed by it or its predecessor, or of any statement of accounts
from its predecessors, or records of payments of the plaintiffs or of any documents which entitled them to the
possession of the lots."35 The defendant, likewise, interposed counterclaims for damages and attorney’s fees and
prayed for the eviction of the plaintiffs from the property.36
Meanwhile, in a letter dated January 25, 1993, plaintiffs, through counsel, proposed an amicable settlement of the case
by paying ₱942,648.70, representing the balance of the purchase price of the two lots based on the current market
value.37 However, the defendant rejected the same and insisted that for the smaller lot, they pay ₱4,500,000.00, the
current market value of the property.38 The defendant insisted that it owned the property since there was no contract
or agreement between it and the plaintiffs’ relative thereto.
During the trial, the plaintiffs adduced in evidence the separate Contracts of Conditional Sale executed between XEI
and Alberto Soller;39 Alfredo Aguila,40 and Dra. Elena Santos-Roque41 to prove that XEI continued selling residential
lots in the subdivision as agent of OBM after the latter had acquired the said lots.
For its part, defendant presented in evidence the letter dated August 22, 1972, where XEI proposed to sell the two lots
subject to two suspensive conditions: the payment of the balance of the downpayment of the property, and the
execution of the corresponding contract of conditional sale. Since plaintiffs failed to pay, OBM consequently refused to
execute the corresponding contract of conditional sale and forfeited the ₱34,877.66 downpayment for the two lots, but
did not notify them of said forfeiture.42 It alleged that OBM considered the lots unsold because the titles thereto bore
no annotation that they had been sold under a contract of conditional sale, and the plaintiffs were not notified of XEI’s
resumption of its selling operations.
On May 2, 1994, the RTC rendered judgment in favor of the plaintiffs and against the defendant. The fallo of the
decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant –
(a) Ordering the latter to execute and deliver a Deed of Absolute Sale over Lot 1 and 2, Block 2 of the Xavierville
Estate Subdivision after payment of the sum of ₱942,978.70 sufficient in form and substance to transfer to them
titles thereto free from any and all liens and encumbrances of whatever kind and nature.
(b) Ordering the defendant to pay moral and exemplary damages in the amount of ₱150,000.00; and
(c) To pay attorney’s fees in the sum of ₱50,000.00 and to pay the costs.
The trial court ruled that under the August 22, 1972 letter agreement of XEI and the plaintiffs, the parties had a
"complete contract to sell" over the lots, and that they had already partially consummated the same. It declared that
the failure of the defendant to notify the plaintiffs of the resumption of its selling operations and to execute a deed of
conditional sale did not prevent the defendant’s obligation to convey titles to the lots from acquiring binding effect.
Consequently, the plaintiffs had a cause of action to compel the defendant to execute a deed of sale over the lots in
their favor.
Boston Bank appealed the decision to the CA, alleging that the lower court erred in (a) not concluding that the letter
of XEI to the spouses Manalo, was at most a mere contract to sell subject to suspensive conditions, i.e., the payment
of the balance of the downpayment on the property and the execution of a deed of conditional sale (which were not
complied with); and (b) in awarding moral and exemplary damages to the spouses Manalo despite the absence of
testimony providing facts to justify such awards.44
On September 30, 2002, the CA rendered a decision affirming that of the RTC with modification. The fallo reads:
WHEREFORE, the appealed decision is AFFIRMED with MODIFICATIONS that (a) the figure "₱942,978.70" appearing
[in] par. (a) of the dispositive portion thereof is changed to "₱313,172.34 plus interest thereon at the rate of 12%
per annum from September 1, 1972 until fully paid" and (b) the award of moral and exemplary damages and
attorney’s fees in favor of plaintiffs-appellees is DELETED.
The appellate court sustained the ruling of the RTC that the appellant and the appellees had executed a Contract to
Sell over the two lots but declared that the balance of the purchase price of the property amounting to ₱278,448.00
was payable in fixed amounts, inclusive of pre-computed interests, from delivery of the possession of the property to
the appellees on a monthly basis for 120 months, based on the deeds of conditional sale executed by XEI in favor of
other lot buyers.46 The CA also declared that, while XEI must have resumed its selling operations before the end of
1972 and the downpayment on the property remained unpaid as of December 31, 1972, absent a written notice of
cancellation of the contract to sell from the bank or notarial demand therefor as required by Republic Act No. 6552,
the spouses had, at the very least, a 60-day grace period from January 1, 1973 within which to pay the same.
Boston Bank filed a motion for the reconsideration of the decision alleging that there was no perfected contract to sell
the two lots, as there was no agreement between XEI and the respondents on the manner of payment as well as the
other terms and conditions of the sale. It further averred that its claim for recovery of possession of the aforesaid lots
101
in its Memorandum dated February 28, 1994 filed before the trial court constituted a judicial demand for rescission
that satisfied the requirements of the New Civil Code. However, the appellate court denied the motion.
Boston Bank, now petitioner, filed the instant petition for review on certiorari assailing the CA rulings. It maintains
that, as held by the CA, the records do not reflect any schedule of payment of the 80% balance of the purchase price,
or ₱278,448.00. Petitioner insists that unless the parties had agreed on the manner of payment of the principal amount,
including the other terms and conditions of the contract, there would be no existing contract of sale or contract to
sell.47 Petitioner avers that the letter agreement to respondent spouses dated August 22, 1972 merely confirmed their
reservation for the purchase of Lot Nos. 1 and 2, consisting of 1,740.3 square meters, more or less, at the price of
₱200.00 per square meter (or ₱348,060.00), the amount of the downpayment thereon and the application of the
₱34,887.00 due from Ramos as part of such downpayment.
Petitioner asserts that there is no factual basis for the CA ruling that the terms and conditions relating to the payment
of the balance of the purchase price of the property (as agreed upon by XEI and other lot buyers in the same
subdivision) were also applicable to the contract entered into between the petitioner and the Respondents. It insists
that such a ruling is contrary to law, as it is tantamount to compelling the parties to agree to something that was not
even discussed, thus, violating their freedom to contract. Besides, the situation of the respondents cannot be equated
with those of the other lot buyers, as, for one thing, the respondents made a partial payment on the downpayment for
the two lots even before the execution of any contract of conditional sale.
Petitioner posits that, even on the assumption that there was a perfected contract to sell between the parties,
nevertheless, it cannot be compelled to convey the property to the respondents because the latter failed to pay the
balance of the downpayment of the property, as well as the balance of 80% of the purchase price, thus resulting in the
extinction of its obligation to convey title to the lots to the Respondents.
Another egregious error of the CA, petitioner avers, is the application of Republic Act No. 6552. It insists that such law
applies only to a perfected agreement or perfected contract to sell, not in this case where the downpayment on the
purchase price of the property was not completely paid, and no installment payments were made by the buyers.
Petitioner also faults the CA for declaring that petitioner failed to serve a notice on the respondents of cancellation or
rescission of the contract to sell, or notarial demand therefor. Petitioner insists that its August 5, 1986 letter requiring
respondents to vacate the property and its complaint for ejectment in Civil Case No. 51618 filed in the Metropolitan
Trial Court amounted to the requisite demand for a rescission of the contract to sell. Moreover, the action of the
respondents below was barred by laches because despite demands, they failed to pay the balance of the purchase price
of the lots (let alone the downpayment) for a considerable number of years.
For their part, respondents assert that as long as there is a meeting of the minds of the parties to a contract of sale as
to the price, the contract is valid despite the parties’ failure to agree on the manner of payment. In such a situation,
the balance of the purchase price would be payable on demand, conformably to Article 1169 of the New Civil Code.
They insist that the law does not require a party to agree on the manner of payment of the purchase price as a
prerequisite to a valid contract to sell. The respondents cite the ruling of this Court in Buenaventura v. Court of
Appeals48 to support their submission.
They argue that even if the manner and timeline for the payment of the balance of the purchase price of the property
is an essential requisite of a contract to sell, nevertheless, as shown by their letter agreement of August 22, 1972 with
the OBM, through XEI and the other letters to them, an agreement was reached as to the manner of payment of the
balance of the purchase price. They point out that such letters referred to the terms of the terms of the deeds of
conditional sale executed by XEI in favor of the other lot buyers in the subdivision, which contained uniform terms of
120 equal monthly installments (excluding the downpayment, but inclusive of pre-computed interests). The
respondents assert that XEI was a real estate broker and knew that the contracts involving residential lots in the
subdivision contained uniform terms as to the manner and timeline of the payment of the purchase price of said lots.
Respondents further posit that the terms and conditions to be incorporated in the "corresponding contract of conditional
sale" to be executed by the parties would be the same as those contained in the contracts of conditional sale executed
by lot buyers in the subdivision. After all, they maintain, the contents of the corresponding contract of conditional sale
referred to in the August 22, 1972 letter agreement envisaged those contained in the contracts of conditional sale that
XEI and other lot buyers executed. Respondents cite the ruling of this Court in Mitsui Bussan Kaisha v. Manila E.R.R. &
L. Co.49
The respondents aver that the issues raised by the petitioner are factual, inappropriate in a petition for review on
certiorari under Rule 45 of the Rules of Court. They assert that petitioner adopted a theory in litigating the case in the
trial court, but changed the same on appeal before the CA, and again in this Court. They argue that the petitioner is
estopped from adopting a new theory contrary to those it had adopted in the trial and appellate courts. Moreover, the
existence of a contract of conditional sale was admitted in the letters of XEI and OBM. They aver that they became
owners of the lots upon delivery to them by XEI.
The issues for resolution are the following: (1) whether the factual issues raised by the petitioner are proper; (2)
whether petitioner or its predecessors-in-interest, the XEI or the OBM, as seller, and the respondents, as buyers, forged
a perfect contract to sell over the property; (3) whether petitioner is estopped from contending that no such contract
was forged by the parties; and (4) whether respondents has a cause of action against the petitioner for specific
performance.
The rule is that before this Court, only legal issues may be raised in a petition for review on certiorari. The reason is
that this Court is not a trier of facts, and is not to review and calibrate the evidence on record. Moreover, the findings
of facts of the trial court, as affirmed on appeal by the Court of Appeals, are conclusive on this Court unless the case
falls under any of the following exceptions:
(1) when the conclusion is a finding grounded entirely on speculations, surmises and conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) where there is a grave abuse of discretion; (4) when
the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court
of Appeals, in making its findings went beyond the issues of the case and the same is contrary to the admissions of
both appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings of
fact are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the
petition as well as in the petitioners’ main and reply briefs are not disputed by the respondents; and (10) when the
findings of fact of the Court of Appeals are premised on the supposed absence of evidence and contradicted by the
evidence on record.50
We have reviewed the records and we find that, indeed, the ruling of the appellate court dismissing petitioner’s appeal
is contrary to law and is not supported by evidence. A careful examination of the factual backdrop of the case, as well
as the antecedental proceedings constrains us to hold that petitioner is not barred from asserting that XEI or OBM, on
one hand, and the respondents, on the other, failed to forge a perfected contract to sell the subject lots.
It must be stressed that the Court may consider an issue not raised during the trial when there is plain error.51 Although
a factual issue was not raised in the trial court, such issue may still be considered and resolved by the Court in the
interest of substantial justice, if it finds that to do so is necessary to arrive at a just decision, 52 or when an issue is
closely related to an issue raised in the trial court and the Court of Appeals and is necessary for a just and complete
resolution of the case.53 When the trial court decides a case in favor of a party on certain grounds, the Court may base
102
its decision upon some other points, which the trial court or appellate court ignored or erroneously decided in favor of
a party.54
In this case, the issue of whether XEI had agreed to allow the respondents to pay the purchase price of the property
was raised by the parties. The trial court ruled that the parties had perfected a contract to sell, as against petitioner’s
claim that no such contract existed. However, in resolving the issue of whether the petitioner was obliged to sell the
property to the respondents, while the CA declared that XEI or OBM and the respondents failed to agree on the schedule
of payment of the balance of the purchase price of the property, it ruled that XEI and the respondents had forged a
contract to sell; hence, petitioner is entitled to ventilate the issue before this Court.
We agree with petitioner’s contention that, for a perfected contract of sale or contract to sell to exist in law, there must
be an agreement of the parties, not only on the price of the property sold, but also on the manner the price is to be
paid by the vendee.
Under Article 1458 of the New Civil Code, in a contract of sale, whether absolute or conditional, one of the contracting
parties obliges himself to transfer the ownership of and deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent. A contract of sale is perfected at the moment there is a meeting of the minds
upon the thing which is the object of the contract and the price. From the averment of perfection, the parties are
bound, not only to the fulfillment of what has been expressly stipulated, but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law. 55 On the other hand, when the contract
of sale or to sell is not perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation
between the parties.56
A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property
because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a
binding and enforceable contract of sale. The fixing of the price can never be left to the decision of one of the contracting
parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale. 57
It is not enough for the parties to agree on the price of the property. The parties must also agree on the manner of
payment of the price of the property to give rise to a binding and enforceable contract of sale or contract to sell. This
is so because the agreement as to the manner of payment goes into the price, such that a disagreement on the manner
of payment is tantamount to a failure to agree on the price.58
In a contract to sell property by installments, it is not enough that the parties agree on the price as well as the amount
of downpayment. The parties must, likewise, agree on the manner of payment of the balance of the purchase price
and on the other terms and conditions relative to the sale. Even if the buyer makes a downpayment or portion thereof,
such payment cannot be considered as sufficient proof of the perfection of any purchase and sale between the parties.
Indeed, this Court ruled in Velasco v. Court of Appeals59 that:
It is not difficult to glean from the aforequoted averments that the petitioners themselves admit that they and the
respondent still had to meet and agree on how and when the down-payment and the installment payments were to be
paid. Such being the situation, it cannot, therefore, be said that a definite and firm sales agreement between the
parties had been perfected over the lot in question. Indeed, this Court has already ruled before that a definite
agreement on the manner of payment of the purchase price is an essential element in the formation of a binding and
enforceable contract of sale. The fact, therefore, that the petitioners delivered to the respondent the sum of ₱10,000.00
as part of the downpayment that they had to pay cannot be considered as sufficient proof of the perfection of any
purchase and sale agreement between the parties herein under article 1482 of the New Civil Code, as the petitioners
themselves admit that some essential matter – the terms of payment – still had to be mutually covenanted.60
We agree with the contention of the petitioner that, as held by the CA, there is no showing, in the records, of the
schedule of payment of the balance of the purchase price on the property amounting to ₱278,448.00. We have
meticulously reviewed the records, including Ramos’ February 8, 1972 and August 22, 1972 letters to
respondents,61 and find that said parties confined themselves to agreeing on the price of the property (₱348,060.00),
the 20% downpayment of the purchase price (₱69,612.00), and credited respondents for the ₱34,887.00 owing from
Ramos as part of the 20% downpayment. The timeline for the payment of the balance of the downpayment
(₱34,724.34) was also agreed upon, that is, on or before XEI resumed its selling operations, on or before December
31, 1972, or within five (5) days from written notice of such resumption of selling operations. The parties had also
agreed to incorporate all the terms and conditions relating to the sale, inclusive of the terms of payment of the balance
of the purchase price and the other substantial terms and conditions in the "corresponding contract of conditional sale,"
to be later signed by the parties, simultaneously with respondents’ settlement of the balance of the downpayment.
Based on these two letters, the determination of the terms of payment of the ₱278,448.00 had yet to be agreed upon
on or before December 31, 1972, or even afterwards, when the parties sign the corresponding contract of conditional
sale.
Jurisprudence is that if a material element of a contemplated contract is left for future negotiations, the same is too
indefinite to be enforceable.64 And when an essential element of a contract is reserved for future agreement of the
parties, no legal obligation arises until such future agreement is concluded. 65
So long as an essential element entering into the proposed obligation of either of the parties remains to be determined
by an agreement which they are to make, the contract is incomplete and unenforceable.66 The reason is that such a
contract is lacking in the necessary qualities of definiteness, certainty and mutuality.67

The February 8, 1972 letter of XEI reads:

Mr. Carlos T. Manalo, Jr. There is no evidence on record to prove that XEI or OBM and the respondents had agreed, after December 31, 1972,
Hurricane Rotary Well Drilling on the terms of payment of the balance of the purchase price of the property and the other substantial terms and
Rizal Avenue Ext.,Caloocan City conditions relative to the sale. Indeed, the parties are in agreement that there had been no contract of conditional sale
Dear Mr. Manalo: ever executed by XEI, OBM or petitioner, as vendor, and the respondents, as vendees. 68
We agree with your verbal offer to exchange the proceeds of your contract with us to form as a down payment for a lot in
our Xavierville Estate Subdivision.
The ruling of this Court in Buenaventura v. Court of Appeals has no bearing in this case because the issue of the manner
Please let us know your choice lot so that we can fix the price and terms of payment in our conditional sale.
of payment of the purchase price of the property was not raised therein.
Sincerely yours,
XAVIERVILLE ESTATE, INC.
(Signed) We reject the submission of respondents that they and Ramos had intended to incorporate the terms of payment
EMERITO B. RAMOS, JR. contained in the three contracts of conditional sale executed by XEI and other lot buyers in the "corresponding contract
President of conditional sale," which would later be signed by them. 69 We have meticulously reviewed the respondents’ complaint
CONFORME: and find no such allegation therein.70 Indeed, respondents merely alleged in their complaint that they were bound to
(Signed) pay the balance of the purchase price of the property "in installments." When respondent Manalo, Jr. testified, he was
CARLOS T. MANALO, JR.
never asked, on direct examination or even on cross-examination, whether the terms of payment of the balance of the
Hurricane Rotary Well Drilling62
purchase price of the lots under the contracts of conditional sale executed by XEI and other lot buyers would form part
of the "corresponding contract of conditional sale" to be signed by them simultaneously with the payment of the balance
The August 22, 1972 letter agreement of XEI and the respondents reads: of the downpayment on the purchase price.
Mrs. Perla P. Manalo
1548 Rizal Avenue Extensionbr>Caloocan City
Dear Mrs. Manalo: We note that, in its letter to the respondents dated June 17, 1976, or almost three years from the execution by the
This is to confirm your reservation of Lot Nos. 1 and 2; Block 2 of our consolidation-subdivision plan as amended, consisting parties of their August 22, 1972 letter agreement, XEI stated, in part, that respondents had purchased the property
of 1,740.3 square meters more or less, at the price of ₱200.00 per square meter or a total price of ₱348,060.00. "on installment basis."71 However, in the said letter, XEI failed to state a specific amount for each installment, and
It is agreed that as soon as we resume selling operations, you must pay a down payment of 20% of the purchase price of whether such payments were to be made monthly, semi-annually, or annually. Also, respondents, as plaintiffs below,
the said lots and sign the corresponding Contract of Conditional Sale, on or before December 31, 1972, provided, however, failed to adduce a shred of evidence to prove that they were obliged to pay the ₱278,448.00 monthly, semi-annually
that if we resume selling after December 31, 1972, then you must pay the aforementioned down payment and sign the or annually. The allegation that the payment of the ₱278,448.00 was to be paid in installments is, thus, vague and
aforesaid contract within five (5) days from your receipt of our notice of resumption of selling operations. indefinite. Case law is that, for a contract to be enforceable, its terms must be certain and explicit, not vague or
In the meanwhile, you may introduce such improvements on the said lots as you may desire, subject to the rules and indefinite.72
regulations of the subdivision.
If the above terms and conditions are acceptable to you, please signify your conformity by signing on the space herein below
provided. There is no factual and legal basis for the CA ruling that, based on the terms of payment of the balance of the purchase
Thank you. price of the lots under the contracts of conditional sale executed by XEI and the other lot buyers, respondents were
Very truly yours, obliged to pay the ₱278,448.00 with pre-computed interest of 12% per annum in 120-month installments. As gleaned
XAVIERVILLE ESTATE, INC. CONFORME: from the ruling of the appellate court, it failed to justify its use of the terms of payment under the three "contracts of
By: conditional sale" as basis for such ruling, to wit:
(Signed) (Signed) On the other hand, the records do not disclose the schedule of payment of the purchase price, net of the
EMERITO B. RAMOS, JR. PERLA P. MANALO downpayment. Considering, however, the Contracts of Conditional Sale (Exhs. "N," "O" and "P") entered into by XEI
with other lot buyers, it would appear that the subdivision lots sold by XEI, under contracts to sell, were payable in
President Buyer63 120 equal monthly installments (exclusive of the downpayment but including pre-computed interests) commencing
on delivery of the lot to the buyer.73

103
By its ruling, the CA unilaterally supplied an essential element to the letter agreement of XEI and the Respondents.
Courts should not undertake to make a contract for the parties, nor can it enforce one, the terms of which are in
doubt.74 Indeed, the Court emphasized in Chua v. Court of Appeals 75 that it is not the province of a court to alter a
contract by construction or to make a new contract for the parties; its duty is confined to the interpretation of the one
which they have made for themselves, without regard to its wisdom or folly, as the court cannot supply material
stipulations or read into contract words which it does not contain.
Respondents, as plaintiffs below, failed to allege in their complaint that the terms of payment of the ₱278,448.00 to
be incorporated in the "corresponding contract of conditional sale" were those contained in the contracts of conditional
sale executed by XEI and Soller, Aguila and Roque.76 They likewise failed to prove such allegation in this Court.
The bare fact that other lot buyers were allowed to pay the balance of the purchase price of lots purchased by them in
120 or 180 monthly installments does not constitute evidence that XEI also agreed to give the respondents the same
mode and timeline of payment of the ₱278,448.00.
Under Section 34, Rule 130 of the Revised Rules of Court, evidence that one did a certain thing at one time is not
admissible to prove that he did the same or similar thing at another time, although such evidence may be received to
prove habit, usage, pattern of conduct or the intent of the parties.
Similar acts as evidence. – Evidence that one did or did not do a certain thing at one time is not admissible to prove
that he did or did not do the same or a similar thing at another time; but it may be received to prove a specific intent
or knowledge, identity, plan, system, scheme, habit, custom or usage, and the like.
However, respondents failed to allege and prove, in the trial court, that, as a matter of business usage, habit or pattern
of conduct, XEI granted all lot buyers the right to pay the balance of the purchase price in installments of 120 months
of fixed amounts with pre-computed interests, and that XEI and the respondents had intended to adopt such terms of
payment relative to the sale of the two lots in question. Indeed, respondents adduced in evidence the three contracts
of conditional sale executed by XEI and other lot buyers merely to prove that XEI continued to sell lots in the subdivision
as sales agent of OBM after it acquired said lots, not to prove usage, habit or pattern of conduct on the part of XEI to
require all lot buyers in the subdivision to pay the balance of the purchase price of said lots in 120 months. It further
failed to prive that the trial court admitted the said deeds77 as part of the testimony of respondent Manalo, Jr.78
Habit, custom, usage or pattern of conduct must be proved like any other facts. Courts must contend with the caveat
that, before they admit evidence of usage, of habit or pattern of conduct, the offering party must establish the degree
of specificity and frequency of uniform response that ensures more than a mere tendency to act in a given manner but
rather, conduct that is semi-automatic in nature. The offering party must allege and prove specific, repetitive conduct
that might constitute evidence of habit. The examples offered in evidence to prove habit, or pattern of evidence must
be numerous enough to base on inference of systematic conduct. Mere similarity of contracts does not present the kind
of sufficiently similar circumstances to outweigh the danger of prejudice and confusion.
In determining whether the examples are numerous enough, and sufficiently regular, the key criteria are adequacy of
sampling and uniformity of response. After all, habit means a course of behavior of a person regularly represented in
like circumstances.79 It is only when examples offered to establish pattern of conduct or habit are numerous enough
to lose an inference of systematic conduct that examples are admissible. The key criteria are adequacy of sampling
and uniformity of response or ratio of reaction to situations.80
There are cases where the course of dealings to be followed is defined by the usage of a particular trade or market or
profession. As expostulated by Justice Benjamin Cardozo of the United States Supreme Court: "Life casts the moulds
of conduct, which will someday become fixed as law. Law preserves the moulds which have taken form and shape from
104
life."81 Usage furnishes a standard for the measurement of many of the rights and acts of men.82 It is also well-settled
that parties who contract on a subject matter concerning which known usage prevail, incorporate such usage by
implication into their agreement, if nothing is said to be contrary. 83
However, the respondents inexplicably failed to adduce sufficient competent evidence to prove usage, habit or pattern
of conduct of XEI to justify the use of the terms of payment in the contracts of the other lot buyers, and thus grant
respondents the right to pay the ₱278,448.00 in 120 months, presumably because of respondents’ belief that the
manner of payment of the said amount is not an essential element of a contract to sell. There is no evidence that XEI
or OBM and all the lot buyers in the subdivision, including lot buyers who pay part of the downpayment of the property
purchased by them in the form of service, had executed contracts of conditional sale containing uniform terms and
conditions. Moreover, under the terms of the contracts of conditional sale executed by XEI and three lot buyers in the
subdivision, XEI agreed to grant 120 months within which to pay the balance of the purchase price to two of them, but
granted one 180 months to do so.84 There is no evidence on record that XEI granted the same right to buyers of two
or more lots.
Irrefragably, under Article 1469 of the New Civil Code, the price of the property sold may be considered certain if it be
so with reference to another thing certain. It is sufficient if it can be determined by the stipulations of the contract
made by the parties thereto85 or by reference to an agreement incorporated in the contract of sale or contract to sell
or if it is capable of being ascertained with certainty in said contract;86 or if the contract contains express or implied
provisions by which it may be rendered certain;87 or if it provides some method or criterion by which it can be definitely
ascertained.88 As this Court held in Villaraza v. Court of Appeals, 89 the price is considered certain if, by its terms, the
contract furnishes a basis or measure for ascertaining the amount agreed upon.
We have carefully reviewed the August 22, 1972 letter agreement of the parties and find no direct or implied reference
to the manner and schedule of payment of the balance of the purchase price of the lots covered by the deeds of
conditional sale executed by XEI and that of the other lot buyers90 as basis for or mode of determination of the schedule
of the payment by the respondents of the ₱278,448.00.
The ruling of this Court in Mitsui Bussan Kaisha v. Manila Electric Railroad and Light Company91 is not applicable in this
case because the basic price fixed in the contract was ₱9.45 per long ton, but it was stipulated that the price was
subject to modification "in proportion to variations in calories and ash content, and not otherwise." In this case, the
parties did not fix in their letters-agreement, any method or mode of determining the terms of payment of the balance
of the purchase price of the property amounting to ₱278,448.00.
It bears stressing that the respondents failed and refused to pay the balance of the downpayment and of the purchase
price of the property amounting to ₱278,448.00 despite notice to them of the resumption by XEI of its selling
operations. The respondents enjoyed possession of the property without paying a centavo. On the other hand, XEI and
OBM failed and refused to transmit a contract of conditional sale to the Respondents. The respondents could have at
least consigned the balance of the downpayment after notice of the resumption of the selling operations of XEI and
filed an action to compel XEI or OBM to transmit to them the said contract; however, they failed to do so.
As a consequence, respondents and XEI (or OBM for that matter) failed to forge a perfected contract to sell the two
lots; hence, respondents have no cause of action for specific performance against petitioner. Republic Act No. 6552
applies only to a perfected contract to sell and not to a contract with no binding and enforceable effect.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No.
47458 is REVERSED and SET ASIDE. The Regional Trial Court of Quezon City, Branch 98 is ordered to dismiss the
complaint. Costs against the Respondents.
G.R. No. 125531 February 12, 1997
JOVAN LAND, petitioner,
vs.
COURT OF APPEALS and EUGENIO QUESADA INC., respondents.
This is a petition for review on certiorari to reverse and set aside the decision of the Court of Appeals in C.A.-G.R. CV
No. 47515.
Petitioner Jovan Land, Inc. is a corporation engaged in the real estate business. Its President and Chairman of the
Board of Directors is one Joseph Sy.
Private respondent Eugenio Quesada is the owner of the Q Building located on an 801 sq. m. lot at the corner of
Mayhaligue Street and Rizal Avenue, Sta. Cruz, Manila. The property is covered by TCT No. 77796 of the Registry of
Deeds of Manila.
Petitioner learned from co-petitioner Consolacion P. Mendoza that private respondent was selling the aforesaid
Mayhaligue property. Thus, petitioner through Joseph Sy made a written offer, dated July 27, 1987 for P10.25 million.
This first offer was not accepted by Conrado Quesada, the General Manager of private respondent. Joseph Sy sent a
second written offer dated July 31, 1989 for the same price but inclusive of an undertaking to pay the documentary
stamp tax, transfer tax, registration fees and notarial charges. Check No. 247048, dated July 31, 1989, for one million
pesos drawn against the Philippine Commercial and Industrial Bank (PCIB) was enclosed therewith as earnest money.
This second offer, with earnest money, was again rejected by Conrado Quesada. Undaunted, Joseph Sy, on August 10,
1989, sent a third written offer for twelve million pesos with a similar check for one million pesos as earnest money.
Annotated on this third letter-offer was the phrase "Received original, 9-4-89" beside which appears the signature of
Conrado Quesada.
On the basis of this annotation which petitioner insists is the proof that there already exists a valid, perfected agreement
to sell the Mayhaligue property, petitioner filed with the trial court, a complaint for specific performance and collection
of sum of money with damages. However, the trial court held that:
. . . the business encounters between Joseph Sy and Conrado Quesada had not passed the negotiation stage relating
to the intended sale by the defendant corporation of the property in question. . . . As the court finds, there is nothing
in the record to point that a contract was ever perfected. In fact, there is nothing in writing which is indispensably
necessary in order that the perfected contract could be enforced under the Statute of Frauds.1
Since the trial court dismissed petitioner's complaint for lack of cause of action, petitioner appealed 2 to respondent
Court of Appeals before which it assigned the following errors:
1. The Court a quo failed to appreciate that there was already a perfected contract of sale between Jovan Land, Inc.
and the private respondent];
2. The Court a quo erred in its conclusion that there was no implied acceptance of the offer by appellants to appellee
[private respondent];
3. The Court a quo was in error where it concluded that the contract of sale was unenforceable;
4. The Court a quo failed to rule that appellant [petitioner] Mendoza is entitled to her broker's commission.3
Respondent court placed petitioner to task on their assignment of errors and concluded that not any of them justifies
a reversal of the trial court decision.
We agree.
105
In the case of Ang Yu Asuncion v. Court of Appeals,4 we held that:
. . . [A] contract (Art. 1157, Civil Code), . . . is a meeting of minds between two persons whereby one binds himself,
with respect to the other, to give something or to render some service. . . . A contract undergoes various stages that
include its negotiation or preparation, its perfection and, finally, its consummation. Negotiation covers the period
from the time the prospective contracting parties indicate interest in the contract to the time the contract is concluded
. . . . The perfection of the contract takes place upon the concurrence of the essential elements thereof.
Moreover, it is a fundamental principle that before contract of sale can be valid, the following elements must be
present, viz: (a) consent or meeting of the minds; (b) determinate subject matter; (3) price certain in money or its
equivalent. Until the contract of sale is perfected, it cannot, as an independent source of obligation, serve as a binding
juridical relation between the parties.
In the case at bench, petitioner, anchors its main argument on the annotation on its third letter-offer of the phrase
"Received original, 9-4-89," beside which appears the signature of Conrado Quesada. It also contends that the said
annotation is evidence to show that there was already a perfected agreement to sell as respondent can be said to have
accepted petitioner's payment in the form of a check which was enclosed in the third letter.
However, as correctly elucidated by the Court of Appeals:
Sy insisted in his testimony that this offer of P12M was accepted by Conrado Quesada but there is nothing written or
documentary to show that such offer was accepted by Conrado Quesada. While Sy claimed that the acceptance could
be gleaned from the notation in the third written offer, the court is not impressed thereon however because the
notation merely states as follows: "Received Original, (S) — Conrado Quesada" and below this signature is "9-4-89".
As explained by Conrado Quesada in his testimony what was received by him was the original of the written offer.
The court cannot believe that this notation marked as Exhibit D-2 would signify the acceptance of the offer. Neither
does it signify, as Sy had testified that the check was duly received on said date. If this were true Sy, who appears
to be an intelligent businessman could have easily asked Conrado Quesada to indicate on Exhibit D the alleged fact
of acceptance of said check. And better still, Sy could have asked Quesada the acceptance in writing separate of the
written offer if indeed there was an agreement as to the price of the proposed sale of the property in question. 5
Clearly then, a punctilious examination of the receipt reveals that the same can neither be regarded as a contract of
sale nor a promise to sell. Such an annotation by Conrado Quesada amounts to neither a written nor an implied
acceptance of the offer of Joseph Sy. It is merely a memorandum of the receipt by the former of the latter's offer. The
requisites of a valid contract of sale are lacking in said receipt and therefore the "sale" is neither valid nor enforceable.
Although there was a series of communications through letter-offers and rejections as evident from the facts of this
case, still it is undeniable that no written agreement was reached between petitioner and private respondent with
regard to the sale of the realty. Hence, the alleged transaction is unenforceable as the requirements under the Statute
of Frauds have not been complied with. Under the said provision, an agreement for the sale of real property or of an
interest therein, to be enforceable, must be in writing and subscribed by the party charged or by an agent thereof.
Petitioner also asseverates that the failure of Conrado Quesada to return the check for one million pesos, translates to
implied acceptance of its third letter-offer. It, however, does not rebut the finding of the trial court that private
respondent was returning the check but petitioner refused to accept the same and that when Conrado Quesada
subsequently sent it back to petitioner through registered mail, the latter failed to claim its mail from the post office.
Finally, we fittingly apply here the oft-repeated doctrine that the factual findings of the trial court, especially as regards
the credibility of witnesses, are conclusive upon this court, unless the case falls under the jurisprudentially established
exceptions. But this is a case that tenders no exceptional circumstance; rather, we find the observations of the trial
court to be legally sound and valid:
. . . Joseph Sy's testimony is not impressive because of several inconsistencies herein pointed out. On the matter of
earnest money, the same appears to be the idea solely of the [petitioner], assuming that he had intended to bind
the [petitioner] corporation. In the written second offer . . . he had stated that the check of P1M had been enclosed
(attached) therewith. The same check . . . was again mentioned to be enclosed (attached) in the third written offer
under date August 10, 1989 . . . . Sy testified in his direct examination that he had personally given this check to
Conrado Quesada. But on cross examination, he reversed himself by saying that the check was given thru his [co-
petitioner] Mendoza. Examining the third written offer, it appears that when it was first typewritten, this P11M was
noted to have been corrected, and that as per his testimony, Sy had increased it to P12M. This is the reason according
to Sy why there was a superimposition of the number "12" over the number "11" to mean P12M as the revised
consideration for the sale of the property in question.6
Respondent court thus concluded that:
. . . [since] the matter of evaluation of the credibility of witness[es] is addressed to the trial court and unless clearly
contrary to the records before Us, the findings of the said court are entitled to great respondent on appeal, . . . it
was Joseph Sy's idea to offer the earnest money, and the evidence to show that Joseph Sy accepted the same, is
wanting. . . .7
and accordingly affirmed the trial court judgment appealed from.
As shown elucidated above, we agree with the findings and conclusions of the trial court and the respondent court.
Neither has petitioner posited any new issues in the instant petition that warrant the further exercise by this court of
its review powers.
WHEREFORE, premises considered, this petition is DENIED.
106
G.R. No. 145017 January 28, 2005
DR. JOSE and AIDA YASON, petitioners,
vs.
FAUSTINO ARCIAGA, FELIPE NERI ARCIAGA, DOMINGO ARCIAGA, and ROGELIO ARCIAGA, respondents.
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing
the Amended Decision1 of the Court of Appeals dated September 13, 2000 in CA G.R. CV No. 55668, entitled "Faustino
Arciaga, et. al. vs. Dr. Jose Yason and Aida Yason."
Spouses Emilio and Claudia Arciaga were owners of Lot No. 303-B situated in Barangay Putatan, Muntinlupa City, with
an area of 5,274 square meters covered by TCT No. 40913 of the Registry of Deeds of Makati City. On March 28, 1983,
they executed a Deed of Conditional Sale whereby they sold Lot No. 303-B for ₱265,000.00 to spouses Dr. Jose and
Aida Yason, petitioners. They tendered an initial payment of ₱150,000.00. On April 19, 1983, upon payment of the
balance of ₱115,000.00, spouses Emilio and Claudia Arciaga executed a Deed of Absolute Sale. That day, Claudia died.
She was survived by her spouse and their six (6) children, namely: Faustino, Felipe Neri, Domingo, Rogelio, Virginia,
and Juanita.
Petitioners had the Deed of Absolute Sale registered in the Registry of Deeds of Makati City. They entrusted its
registration to one Jesus Medina to whom they delivered the document of sale and the amount of ₱15,000.00 as
payment for the capital gains tax. Without their knowledge, Medina falsified the Deed of Absolute Sale and had the
document registered in the Registry of Deeds of Makati City. He made it appear that the sale took place on July 2,
1979, instead of April 19, 1983, and that the price of the lot was only ₱25,000.00, instead of ₱265,000.00. On the
basis of the fabricated deed, TCT No. 40913 in the names of spouses Arciaga was cancelled and in lieu thereof, TCT
No. 120869 was issued in the names of petitioners.
Subsequently, petitioners had Lot No. 303-B subdivided into 23 smaller lots. Thus, TCT No. 120869 was cancelled and
in lieu thereof, TCT Nos. 132942 to 132964 were issued. Petitioners then sold several lots to third persons, except the
13 lots covered by TCT Nos. 132942, 132943, 132945, 132946, 132948, 132950, 132951, 132953, 132954, 132955,
132958, 132962 and 132963, which they retained.
Sometime in April 1989, spouses Arciaga’s children learned of the falsified document of sale. Four of them, namely:
Faustino, Felipe Neri, Domingo and Rogelio, herein respondents, caused the filing with the Office of the Provincial
Prosecutor of Makati City a complaint for falsification of documents against petitioners, docketed as I.S No. 89-1966.
It was only after receiving the subpoena in April 1989 when they learned that the Deed of Absolute Sale was falsified.
However, after the preliminary investigation, the Provincial Prosecutor dismissed the complaint for falsification for lack
of probable cause.
Undaunted, respondents, on October 12, 1989, filed with the Regional Trial Court (RTC), Branch 62, Makati City, a
complaint for annulment of the 13 land titles, mentioned earlier, against petitioners. Respondents alleged inter alia that
the Deed of Absolute Sale is void ab initio considering that (1) Claudia Arciaga did not give her consent to the sale as
she was then seriously ill, weak, and unable to talk and (2) Jesus Medina falsified the Deed of Absolute Sale; that
without Claudia’s consent, the contract is void; and that the 13 land titles are also void because a forged deed conveys
no title.
In their answer, petitioners specifically denied the allegations in the complaint and averred that they validly acquired
the property by virtue of the notarized Deed of Conditional Sale and the Deed of Absolute Sale executed by spouses
Emilio and Claudia Arciaga, respondents’ parents. The Deed of Absolute Sale was duly signed by the parties in the
morning of April 19, 1983 when Claudia was still alive. It was in the evening of the same day when she died. Hence,
the contract of sale is valid. Furthermore, they have no participation in the falsification of the Deed of Absolute Sale by
Medina. In fact, they exerted efforts to locate him but to no avail.
On August 29, 1995, the trial court rendered a Decision dismissing respondents’ complaint and sustaining the validity
of the Deed of Conditional Sale and the Deed of Absolute Sale. The dispositive portion reads:
"WHEREFORE, Premises Considered, the COMPLAINT is hereby ordered DISMISSED, without pronouncement as to
costs.
In their appeal to the Court of Appeals, respondents alleged that the trial court clearly overlooked vital and significant
facts which, if considered, would alter the result. Likewise, the trial court erred in concluding that the Deed of Absolute
Sale forged by Medina transferred ownership to the vendees, being buyers in good faith; and in finding that Claudia
Arciaga consented to the sale of the lots to petitioner spouses.2
Initially, the Court of Appeals in its Decision dated February 21, 2000 affirmed the trial court’s ruling. But upon
respondents’ motion for reconsideration, the Appellate Court reconsidered its Decision. In its Amended Decision, it
declared the Deed of Absolute Sale void, thus:
"WHEREFORE, Our decision dated February 21, 2000 is hereby SET ASIDE. The Deed of Absolute Sale dated April
19, 1983 is hereby declared null and void. The Registry of Deeds for Makati City is hereby ordered to cancel TCT Nos.
132942, 132943, 132945, 132946, 132948, 132950, 132951, 132953, 132954, 132955, 132958, 132962 and
132963 issued in the name of Jose Yason and to reinstate TCT No. 40913 in the name of Emilio Arciaga.
In reversing its own Decision, the Appellate Court held:
"There is no evidence showing that said July 2, 1979 Deed of Absolute Sale covering the subject property was ever
executed by the parties. The appellees themselves who were supposedly the vendees did not even know of the
existence of such sale. What the appellees were claiming was that they entrusted to one Jesus Medina the original
copies of the purported Deed of Absolute Sale dated April 19, 1983 and the owner’s copy of TCT No. 40913 together
with the amount of ₱15,000.00 for capital gains tax and expenses for registration.
xxx
It turned out that Medina did not use the Deed of Sale dated April 19, 1983 but fabricated a Deed of Absolute Sale
dated July 2, 1979 with a reduced consideration of ₱25,000.00.
xxx
Being a forged document, the July 2, 1979 Deed of Absolute Sale is indeed null and void.
It appears, however, that a Deed of Conditional Sale dated March 28, 1983 (Exh. 1, Record, p. 289) and a Deed of
Absolute Sale dated April 19, 1983 (Exh. 2, Record, p. 290) were purportedly executed by Emilio Arciaga and the
appellees and that the said property was allegedly sold for ₱265,000.00.
xxx
The curious part about the controversial deeds is the date of their supposed execution, especially the date of the
Absolute Deed of Sale which coincides with the date of the death of Claudia Arciaga. Also intriguing is the fact that
only a thumbmark and not a signature of Claudia Arciaga was affixed on the supposed deeds, when in fact she could
definitely read and write.
Appellants claimed that their mother Claudia Rivera never gave her consent to the sale. They said that the thumbmark
of their mother Claudia Arciaga was allegedly fixed on the Deed of Conditional Sale, if indeed it was prepared before
the death of their mother on April 19, 1983, when she was already very ill and bedridden and could not anymore
give her consent thereto, and the Deed of Absolute Sale was thumbmarked when she was already dead.
xxx
As between the testimony of the appellants and their sister Virginia Arciaga-Reyes, We are inclined to believe the
claim of the former that their mother Claudia Rivera Arciaga died at around 10:00 in the morning.
xxx
The time when Claudia Rivera Arciaga actually died, to Us, is crucial if only to determine the credibility of witnesses.
107
As between Virginia Arciaga Reyes and Jacklyn de Mesa, the latter is more credible.l^vvphi1.net She did not have
any interest in the controverted property, unlike the appellants and Virginia Reyes, who are the children of Claudia
Rivera Arciaga. The cardinal rule in the law of evidence is that the testimony must not only proceed from the mouth
of a credible witness but must also be credible in itself (People vs. Serdan, G.R. 87318, September 2, 1992).
xxx
We certainly cannot believe the testimony of Virginia Arciaga Reyes that her mother Claudia went to the house of
Atty. Fresnedi for the execution of the Deed of Conditional Sale. A person who is physically fit to travel can definitely
write his signature, as only minimal effort is needed to perform this simple mechanical act. But what appeared in the
deed was only a purported thumb mark of Claudia. Even Virginia Reyes said that her mother could write. Her
testimony only supports the claim of the appellants that Claudia Rivera Arciaga was already very ill and weak when
the Deed of Conditional Sale was purportedly executed, and was already dead when she was made to affix her thumb
mark on the Deed of Absolute Sale.
xxx
In sum, the inconsistent testimonies of the appellee and his witnesses, particularly that of Virginia Arciaga Reyes,
clearly show that Claudia Rivera Arciaga did not voluntarily affix her thumb mark on the Deed of Conditional Sale and
Deed of Absolute Sale."
Hence, this petition for review on certiorari alleging that the Court of Appeals erred in declaring the Deed of Absolute
Sale void for lack of consent on the part of Claudia Arciaga and because the same document was forged by Medina.
The petition is impressed with merit.
The rule is that only questions of law may be raised in a petition for review on certiorari; and that the factual findings
of the trial court, when adopted and confirmed by the Court of Appeals, are final and conclusive on this Court. 3 However,
there are exceptions, such as when the findings of the Court of Appeals are contrary to those of the trial court, 4 as in
this case.
In determining whether the Deed of Absolute Sale dated April 19, 1983 is valid, it must contain the essential requisites
of contracts, viz: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract;
and (3) cause of the obligation which is established.5 A contract of sale is perfected at the moment there is a meeting
of the minds upon the thing which is the object of the contract and upon the price. 6 Consent is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to constitute the
contract.7 To enter into a valid legal agreement, the parties must have the capacity to do so.
The law presumes that every person is fully competent to enter into a contract until satisfactory proof to the contrary
is presented. The burden of proof is on the individual asserting a lack of capacity to contract, and this burden has been
characterized as requiring for its satisfaction clear and convincing evidence.
The Appellate Court, in its Amended Decision, held that the Deed of Absolute Sale is void for lack of consent on the
part of Claudia Arciaga who could not have affixed her thumbmark thereon since she was very ill then. In fact, she
died a few hours thereafter.
Thus, the basic issue for our resolution is whether Claudia Arciaga voluntarily affixed her thumbmark on the documents
of sale.
Respondents contend that Claudia did not give her consent to the contracts of sale. Since she knew how to read and
write, she should have signed each document instead of merely affixing her thumbmark thereon.
Domingo Arciaga, one of the respondents, testified that her mother Claudia was 82 years old when she died on April
19, 1983 due to "old age" and illness for four (4) months. On March 28, 1983, when the Conditional Deed of Sale was
allegedly executed, she was already very weak and thin and could no longer speak. Considering her physical condition,
she could not have affixed her thumbmark on the Conditional Deed of Sale that day. 8
Domingo further testified that their mother Claudia, at the time of her death, was being attended to by his sisters
Juanita and Virginia Arciaga; that he saw Virginia holding the thumb of their mother to enable her to affix her
thumbmark on the Deed of Absolute Sale, then being held by Juanita, thus:
"Q: Now, you have examined the document entitled Deed of Sale dated April 19, 1983, when for the first time did
you see this document?
A: When my mother died.
Q: When?
A: April 19, 1983.
Q: At what particular occasion or will you please tell the Honorable Court the circumstances how you were able to
see this document on April 19, 1983?
A: This is like this. While my mother was being attended, I went over to the porch and I saw Mr. Rogelio Arciaga. We
talked with each other. After that I went inside the house wherein I saw Juliana Arciaga holding that document, the
Deed of Sale, and Virginia Arciaga was holding the thumb of mother affixing said thumb to the document.
Q: Who is Virginia Arciaga?
A: My sister.
Q: How about Juanita Arciaga?
A: My sister also.
Q: How about Rogelio Arciaga?
A: I have also a brother named Rogelio Arciaga but the one I mentioned has the same name as my brother.
Q: After that what happened?
A: I asked, what is that? And they told me that one parcel of land was sold already by us and they said that this is
the Deed of Absolute Sale as proof that we have sold that parcel of land. I asked them: Why did you do that? It
cannot be! Our mother is a good mother, why still permit her to commit a sin.
Q: After that what happened next?
A: They told me that they are not going to pursue with it and I told them it cannot be really done."9
Domingo’s testimony was corroborated by his brother Felipe Arciaga who testified that their mother was already dead
when her thumbmark was affixed on the document of sale, thus:
"Q: Did you hear any conversation between Domingo and your sisters holding the document?
A: Yes, sir.
Q: What was the conversation that you heard?
A: My brother said that it should not be thumbmarked since my mother is already dead. My sisters Virginia and
Juanita replied that the thumb marking will no longer proceed."10
Upon the other hand, petitioners maintain that Claudia voluntarily affixed her thumbmark on the Deeds of Conditional
and Absolute Sale which were notarized by Atty. Jaime Fresnedi. and Absolute Sale which were notarized by Atty.
Jaime Fresnedi. Virginia Arciaga Andres, daughter of Claudia, testified that she took care of her mother. Five (5)
months prior to the execution of the Conditional Deed of Sale on March 28, 1983, her parents informed her and her
siblings that they would sell their land. After the sale, her brother Felipe Neri borrowed ₱50,000.00 from their father.
Her father signed the two documents of sale, while her mother affixed her thumbmark thereon. Then Atty. Jaime
Fresnedi notarized the Conditional Deed of Sale in his office, while the Deed of Absolute Sale was notarized in her
house. Her brothers (respondents herein) were all notified of the sale. 111awphi1.nét
Atty. Jaime Fresnedi testified that he notarized the subject documents and knew that Claudia affixed her thumbmark
thereon, thus:
"Q: What is the importance of the signatures in these two (2) documents?
A: That the parties who executed these documents appeared before me, your Honor.
xxx
108
Q: And when did you notarize the said document, this Deed of Absolute Sale dated April 19, 1983?
A: It was notarized in the same date.
Q: Where was it notarized?
A: It was also notarized in my office.
A: Yes, sir.12
xxx
Q: Do you know personally Claudia Arciaga, the wife of Emilio Arciaga?
A: No, I do not know her personally.
xxx
Q: Prior to the execution of this document, Absolute Deed of Sale dated April 19, 1983, have you not met Claudia
Rivera?
A: I cannot remember.
xxx
Q: When you notarized this document on April 19, 1983, did you talk to Claudia Rivera?
A: I cannot remember.13
xxx
COURT:
Q: Did you ascertain whether the person who affixed that thumbmark was really CLAUDIA ARCIAGA?
A: Yes, your Honor.
Q: What means did you take to ascertain that the one who affixed that thumbmark was CLAUDIA ARCIAGA?
A: Because, your Honor, when there is a party, not necessarily your Honor in this case, whenever a party would
request me to prepare a document and notarize such document, I asked his name and he answered. Let us say for
example, this Mr. dela Cruz, he says he is Mr. dela Cruz or Mrs. Arciaga. That thru that introduction I knew that they
were the ones who affixed their signatures or affix their thumbmarks.
Q: In this particular case, did you do that?
A: Yes, your Honor."14
The Court of Appeals, reversing the trial court, held that respondents were able to prove that Claudia Arciaga could not
have affixed her thumbmark voluntarily on the Conditional Deed of Sale as "she was already very ill and bedridden and
could not anymore give her consent thereto;" and that "the Absolute Deed of Sale was thumbmarked when she was
already dead."
While it is true that Claudia was sick and bedridden, respondents failed to prove that she could no longer understand
the terms of the contract and that she did not affix her thumbmark thereon. Unfortunately, they did not present the
doctor or the nurse who attended to her to confirm that indeed she was mentally and physically incapable of entering
into a contract. Mere weakness of mind alone, without imposition of fraud, is not a ground for vacating a contract. 15 Only
if there is unfairness in the transaction, such as gross inadequacy of consideration, the low degree of intellectual
capacity of the party, may be taken into consideration for the purpose of showing such fraud as will afford a ground
for annulling a contract.16 Hence, a person is not incapacitated to enter into a contract merely because of advanced
years or by reason of physical infirmities, unless such age and infirmities impair his mental faculties to the extent that
he is unable to properly, intelligently and fairly understand the provisions of said contract. Respondents failed to show
that Claudia was deprived of reason or that her condition hindered her from freely exercising her own will at the time
of the execution of the Deed of Conditional Sale.
Also, it is of no moment that Claudia merely affixed her thumbmark on the document. The signature may be made by
a person’s cross or mark even though he is able to read and write and is valid if the deed is in all other respects a valid
one.17
Significantly, there is no evidence showing that Claudia was forced or coerced in affixing her thumbmark on the Deed
of Conditional Sale.
Respondents insist that their mother died in the morning of April 19, 1983, hence, she could no longer affix her
thumbmark on the Deed of Absolute Sale. Petitioners, however, maintain that she died in the evening of that day and
that she affixed her thumbmark on the deed in the morning of that same day.
Respondents should have offered in evidence the Certificate of Death of Claudia to show the exact date and time of
her death. Again, they should have presented the attending physician to testify whether or not Claudia could still affix
her thumbmark then.
As earlier mentioned, the burden is on the respondents to prove the lack of capacity on the part of Claudia to enter
into a contract. And in proving this, they must offer clear and convincing evidence. This they failed to do.
The Court of Appeals also held that there is inconsistency in the testimonies of Virginia Arciaga and Atty. Jaime Fresnedi.
While Virginia testified that the Deed of Absolute Sale was notarized in her house where Claudia lived, Atty. Fresnedi
declared on the witness stand that he notarized the document in his office. The Appellate Court concluded that such
inconsistency clearly shows that Claudia did not voluntarily affix her thumbmark on the document of absolute sale.
Records disclose, however, that when Atty. Fresnedi testified in court, nine (9) years had passed from the time he
notarized the Deed of Absolute Sale. Considering the length of time that passed and the numerous documents he must
have notarized, his failure to remember exactly where he notarized the contract of sale is understandable. Thus, we
cannot sustain the finding and conclusion of the Court of Appeals on this point.l^vvphi1.net
In Chilianchin vs. Coquinco,18 this Court held that a notarial document must be sustained in full force and effect so long
as he who impugns it does not present strong, complete, and conclusive proof of its falsity or nullity on account of
some flaws or defects provided by law. Here, respondents failed to present such proof.
It bears emphasis that a notarized Deed of Absolute Sale has in its favor the presumption of regularity, and it carries
the evidentiary weight conferred upon it with respect to its execution. 19
All told, we are convinced and so hold that there was consent on the part of Claudia Arciaga when she executed the
Conditional Deed of Sale and the Deed of Absolute Sale being assailed by respondents. These documents, therefore,
are valid.
WHEREFORE, the challenged Decision of the Court of Appeals in CA-G.R. CV No. 55668 is REVERSED. The Decision
of the RTC, Branch 62, Makati City dismissing respondents’ complaint is AFFIRMED.
109
[ G.R. No. 213001, August 04, 2021 ]
LAURO CARDINEZ, ISIDRO CARDINEZ, JESUS CARDINEZ, VIRGIE CARDINEZ, FLORA LACONSAY AND AIDA
DELA CRUZ, PETITIONERS, VS. SPOUSES PRUDENCIO AND CRESENCIA CARDINEZ, RESPONDENT.
This Petition for Review on Certiorari1 assails the September 30, 2013 Decision,2 and June 2, 2014 Resolution3 of the
Court of Appeals (CA/appellate court) in CA - G.R. CV No. 98861 which affirmed with modification the February 28,
2012 Decision4 of the Regional Trial Court (RTC/trial court), Branch 66 of San Fernando City, La Union in Civil Case
No. 7449.
The late Simeona Cardinez owned a 1,950-square meter parcel of land situated in Brgy. Sta. Cruz, Bacnotan, La Union.
Upon her demise, her sons, Prudencio, Florentino, and Valentin inherited the land and equally divided it among
themselves. On April 23, 1986, Transfer Certificate of Title (TCT) No. T-267015 covering the land was issued in the
name of the brothers as co-owners. Prudencio's share in the land was the middle portion which he registered for
taxation purposes under Tax Declaration No. (TD) 18237.6
Sometime in 1994, Valentin requested Prudencio to donate the ten-square meter portion of his land being encroached
by the former's balcony. Prudencio agreed to Valentin's request out of his love and trust for his brother. Valentin then
asked Prudencio and his wife Cresencia Cardinez (Cresencia) to sign a document that was written in English. Prudencio
and Cresencia were unable to understand the contents.
Hence, Valentin told the Cardinez couple that the purported document was for the partition of the inherited land,
cancellation of TCT No. T-26701, and transfer of their shares in their respective names.7 As they were convinced by
Valentin's explanation and trusted him, Prudencio and Cresencia signed the document without even reading and
understanding its contents. The spouses Cardinez were not given a copy of the document after it was signed.8
Fourteen years later, or on June 8, 2008, Prudencio found out that a survey of the land was being conducted. He then
inquired if his inherited portion of the land was still in his name. To Prudencio's surprise, Valentin's children, Lauro
Cardinez (Lauro), Isidro Cardinez (Isidro), Jesus Cardinez, Virgie Cardinez, Flora Laconsay, and Aida Dela Cruz (Aida),
(collectively, petitioners) informed him that he already donated his inherited portion to them through the document
that he allegedly executed with Cresencia.9
Henry and Nelson, sons of Prudencio, went to petitioners' house to verify the truth about the donation. Petitioners
showed them a notarized Deed of Donation of Real Property10 (Deed of Donation) dated April 26, 1994. The Deed of
Donation stated that respondents, as well as Florentino Cardinez married to Isabel Cardinez, and Valentin Cardinez
married to Eufrosina Cardinez, donated their respective portions of the land covered by TCT No. T-26701 to them. All
the donors including respondents signed the purported document.11
Henry, upon the instruction of Prudencio, then inquired from the Register of Deeds in San Fernando, Pampanga about
the Deed of Donation. However, Henry was informed that a copy of the original TCT covering his father's land was
among those burnt when the Bureau of Lands was caught on fire.12 He then went to the Bacnotan Assessor's Office
where he discovered that TCT No. T-26701 no longer bore his father's name as one of the co-owners. Instead, it bore
the name of Lauro, Valentin's son, by virtue of the Deed of Donation.13 He, together with Prudencio, then looked for
Mario Rodriguez (Rodriguez), a duly commissioned notary public in Bacnotan, who admitted to notarizing the said
Deed.14
Respondents thus filed a complaint15 against petitioners before the Barangay Chairman of Brgy. Sta. Cruz, Bacnotan,
La Union. However, any hope for an amicable settlement dissipated when petitioners insisted on the validity of the
Deed of Donation and refused to vacate respondents' property.16
Perforce, on November 19, 2008, respondents filed a Complaint for Annulment of Document with Recovery of
Possession and Damages.17 They averred that Valentin took advantage of their low level of education when he made
them believe that the document they were signing were for the partition of the inherited land, cancellation of TCT No.
T-26701, and transfer of their shares in their respective names. Valentin therefore used machinations and
misrepresentations to induce them to sign the document which turned out to be a Deed of Donation.18
In support of their claim, respondents presented the following documentary evidence: (a) TCT No. T-26701;19 (b) TD
1823720 in the name of Prudencio and the annotation therein stating that the middle portion of the land known as Lot
6301 was segregated by virtue of a Deed of Partition registered under Entry No. 65986 dated April 23, 1986;21 (c) the
purported Deed of Donation22 dated April 26, 1994; (d) Affidavit23 of Valentin dated October 7, 1982 stating that he
bought the entire land in 1972;24 and (e) the survey plan25 of petitioners' house.
Prudencio took the witness stand and strongly asserted that he did not donate his land to petitioners. He narrated that
Valentin went to their house and asked him and his wite Cresencia to sign a document claiming that it pertained to the
partition of their inherited land. Prudencio, together with Cresencia, then signed the purported document of partition
without reading the same due to the trust and confidence that they reposed on Valentin. When he discovered that the
document was a Deed of Donation, he was devastated and heartbroken because of the deceitful act employed on him
by his very own brother.
Prudencio attested that he and Cresencia only finished Grade 3 elementary education. On cross-examination, he also
admitted that he appeared before the notary public for notarization of the document. However, the latter did not explain
to him the contents thereof.
Henry, and petitioners' niece, Aurelia Cardinez, also testified. They recalled that TCT No. T-26701 no longer bore
Prudencio's name as one of the co-owners by reason of the Deed of Donation.
After respondents rested their case, petitioners filed a Demurrer to Evidence26 on grounds of lack of cause of action
and prescription. However, the RTC denied the demurrer for lack of merit in its Order27 dated March 15, 2010.
Petitioners denied the allegations of respondents. They averred that Prudencio purchased the subject land sometime
in 197228 and then donated it to petitioners as evidenced by the Deed of Donation dated April 26, 1994. Consequently,
on November 2, 1994, TCT No. T-4045929 was issued in the name of petitioners as well as the corresponding TD 93-
040-1946730 and 93-040-19468.31
Petitioners asserted that respondents voluntarily executed the Deed of Donation and had understood its contents. They
insisted that respondents can fully comprehend and understand English. In fact, Cresencia was even a Barangay
Kagawad in their barangay. Also, respondents even affixed their signatures in the Deed and personally appeared before
the notary public.
Moreover, petitioners claimed that they did not know if Valentin went to Prudencio's house to secure their signatures
for the purported partition of the land.ℒαwρhi৷ They were unaware of the agreement between Valentin and Prudencio
that only a ten-square meter portion of their uncle's land would be freely given pursuant to their father's request. They
claimed that their father would not have made such a request since Prudencio already donated his land to them.
110
Lastly, petitioners contended that the action had already prescribed since 10 years had lapsed from the execution of
the Deed of Donation, a written contract.
Petitioners presented the following documentary evidence during the trial: (a) Deed of Donation32 dated April 26,
1994; (b) TCT No. T-4045933 dated November 2, 1994 that was issued in their name; (c) TD 93-040-1946734 and
93-040-1946835 in their names covering the subject land; (d) the same Affidavit36 of Valentin dated October 7, 1982;
and (e) Tax Receipt37 dated June 17, 2008 proving that they are presently in possession of the subject land.
Rodriguez was presented as one of petitioners' witnesses who testified that he notarized the purported Deed of Donation
and that all the parties personally appeared before him in his law office in Bacnotan, La Union.38
Aida and Isidro, two of the petitioners herein, also testified during the trial. Both attested that they acquired the subject
land by virtue of the valid Deed of Donation. The signatures therein were the signatures of their parents Valentin and
Eufrosina, their uncle and aunt Florentino and Isabel, and petitioners. Interestingly, Isidro admitted that his mother,
Eufrosina died on 1985, or nine years before the purported Deed of Donation was executed.39
Ruling of the Regional Trial Court:
In its Decision40 dated February 28, 2012, the RTC found respondents' evidence sufficient to prove that the Deed of
Donation was executed through fraudulent means. It held that respondents' consent was vitiated due to the deceit
employed by Valentin when the latter made it appear that the document they signed was for the partition of their
inherited land. Thus, the RTC declared that the Deed of Donation was voidable or effective until set aside.41
Considering that respondents instituted the complaint within four years from discovery of the fraudulent act, the RTC
further held that the action against petitioners had not yet prescribed.42
The fallo of the RTC Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against defendants,
as follows:
1. Declaring the "Deed of Donation of Real Property" dated April 26, 1994, entered as Doc. No. 241, Page No. 46,
Book No. II, Series of 1994 in the notarial book of notary public Mario G. Rodriguez as void and rescinded in part
insofar as it included the donation of the share of plaintiffs-spouses Prudencio and Cresencia Cardinez in the parcel
of land covered by Transfer Certificate of Title No. T-26701 to herein defendants;
2. Declaring Transfer Certificate of Title No. T-40459 in the names of defendants Lauro Cardinez, Aida C. dela Cruz,
Jesus Cardinez and Isidro Cardinez of no force and effect;
3. Reinstating, for all intents and purposes, the validity of Tax Declaration No. 18237 in the name of Prudencio
Cardinez; and
4. Ordering the defendants to cede possession of the lot embraced by Tax Declaration No. 18237 in the name of
Prudencio Cardinez to the plaintiffs.
Aggrieved, petitioners appealed before the CA.44
Ruling of the Court of Appeals:
The CA, in its September 30, 2013 Decision,45 affirmed the findings of the RTC that petitioners did not freely give their
land to petitioners by virtue of a Deed of Donation. Petitioners sufficiently proved that Valentin, through deceit, made
respondents believe that the document they signed was for the partition of their inherited land.46
However, the appellate court ruled that the Deed of Donation was void ab initio, and not just voidable as found by the
trial court, since respondents' consent, which is an indispensable element in donation, was totally absent. As a
consequence thereof, the Deed of Donation has no force and effect and can be subject to attack at any time.47
The dispositive portion of the assailed CA Decision states:
WHEREFORE, the Decision of the Regional Trial Court Branch 66, San Fernando City, La Union in Civil Case No. 7449
is hereby MODIFIED by declaring the "Deed of Donation of Real Property" dated April 26, 1994 as null and void and
of no legal effect insofar as it included the donation of the share of appellees Prudencio and Cresencia Cardinez in
the parcel of land covered by Transfer Certificate of Title No. T-26701 to appellants. The Decision is AFFIRMED in
all other respects.
Petitioners filed a Motion for Reconsideration49 but it was denied by the appellate court in its Resolution50 dated June
2, 2014.
Hence, this Petition for Review on Certiorari.51
Issues
Petitioners raised the following issues for disposition:
1. WHETHER OR NOT THE DEED OF DONATION OF REAL PROPERTY EXECUTED BY PRUDENCIO, VALENTIN AND
FLORENTINO IN FAVOR OF PETITIONERS IS VALID.
2. ASSUMING THAT THERE IS A DEFECT IN THE CONSENT OF PRUDENCIO TO THE DEED OF DONATION OF REAL
PROPERTY, WHETHER THE DONATION IS VOID OR MERE VOIDABLE.
3. ASSUMING THAT THERE IS A DEFECT IN THE CONSENT OF PRUDENCIO, WHETHER OR NOT THE ACTION HAS
ALREADY PRESCRIBED CONSIDERING THAT THE ACTION WAS BROUGHT ONLY ON NOVEMBER 28, 2008 OR MORE
THAN 14 YEARS SINCE THE EXECUTION OF THE DEED OF DONATION OF REAL PROPERTY ON APRIL 26, 1994.
The issues to be resolved in this case are: (a) whether the donation is valid; and (b) whether the action instituted by
respondents has already prescribed.
Our Ruling
The petition is bereft of merit.
Deed of Donation is void ab initio in the absence of respondents' consent.
Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who
accepts it.52 An agreement between the donor and the donee is essential like in any other contract.53 As such, the
requisites of a valid contract under Article 1318 of the Civil Code must concur, namely: (1) consent of the contracting
parties, that is consent to donate the subject land to petitioners; (2) object certain which is the subject matter of the
contract; (3) cause of the obligation which is established.54
Consent is absent in the instant case. Consent, to be valid, must have the following requisites: (1) intelligent or with
an exact notion of the matter to which it refers; (2) free; and (3) spontaneous.55 The parties' intention should be
clear; otherwise, the donation is rendered void in the absence thereof56 or voidable if there exists a vice of consent.57
111
We agree with the appellate court that respondents did not give their consent to the donation of their land to petitioners.
Hence, no valid donation had transpired between the parties.
It is settled that in civil cases, the one who alleges a fact has the burden of proving it and a mere allegation is not
evidence.58 Hence, respondents here must establish their case by a preponderance of evidence, that is, evidence that
has greater weight, or is more convincing than that which petitioners offered in opposition to it.59
The absence of consent, and not just a mere vitiation thereof, on the part of respondents to donate their land has been
satisfactorily established.
Prudencio categorically and firmly stated that he did not know that the document which Valentin asked him to sign was
a Deed of Donation. In fact, Prudencio did not read the document before affixing his signature because he trusted his
brother that it was for the partition of their inherited land and the cancellation of its title. Valentin neither read the
contents of the document to respondents nor gave them a copy thereof. The notary public likewise did not explain its
contents to respondents and only asked them to affix their signatures therein.
The Court also finds it very perplexing why respondents would donate their portion of the land which Prudencio inherited
from his mother considering that Prudencio and Cresencia have children of their own.
To debunk the claim of respondents that they are not highly educated since they only finished Grade 3, petitioners
averred that Cresencia could not have become a Barangay Kagawad if she and her husband did not understand and
comprehend the English language. However, their allegation was not supported by any evidence which could have
proved their claim.
We stress that mere allegations do not constitute proof.60 "It is basic in the rule of evidence that bare allegations,
unsubstantiated by evidence, are not equivalent to proof. In short, mere allegations are not evidence."61 Hence, the
fact that respondents do not fully understand the English language stands.
It is therefore clear that respondents did not donate their land to petitioners. They never understood the full import of
the document because it was neither shown to them nor read by either Valenin or the notary public. Considering that
they did not give their consent at all to the Deed of Donation, it is therefore null and void.62
The notarized Deed of Donation does not enjoy the presumption of regularity
Petitioners also aver that the notarized Deed of Donation enjoys the presumption of regularity as it complied with all
the formalities required by law. This is not acceptable.
A document acknowledged before a notary public indeed enjoys the presumption of regularity.63 It carries the
evidentiary weight conferred upon it with respect to its due execution.64 As such, a party who assails the regularity of
a public document must present evidence that is clear and convincing to overcome the presumption.65 Otherwise, the
presumption must be upheld.66
Here, respondents successfully refuted said presumption of regularity. Rodriguez, the notary public, testified that all
the parties personally appeared before him when the Deed of Donation was notarized. Interestingly, Eufrosina, the
wife of Valentin and one of the signatories in the Deed, died in 1958, or 36 years before the Deed of Donation was
executed. It is worthy to note that Isidro, one of the petitioners, admitted his mother's demise during the trial.
Thus, Eufrosina could not have personally appeared before the notary public unless by some miracle she had risen
from her grave to sign the Deed of Donation. The only plausible conclusion is that another person stood in her place,
and that the notary public did not duly ascertain if the person who signed the Deed of Donation was actually Eufrosina.
The action for annulment of the Deed of Donation is imprescriptible.
The Deed of Donation is an absolute nullity hence it is subject to attack at any time. Its defect, i.e., the absence of
consent of respondents, is permanent and incurable by ratification or prescription.67 In other words, the action is
imprescriptible. This is in accord with Article 1410 of the Civil Code which states that an action to declare the inexistence
of a void contract does not prescribe.68
Since the Deed of Donation is void ab initio due to the illegality in its execution, the disputed land is deemed to be
simply held by petitioners in trust for respondents who are the real owners.69 Respondents therefore have the right to
institute a case against petitioners for the reconveyance of the property at any time.70 The well-settled rule is that
"[a]s long as the land wrongfully registered under the Torrens system is still in the name of the person who caused
such registration, an action in personam will lie to compel him to reconvey the property to the real owner."71
WHEREFORE, the Petition for Review on Certiorari is DENIED. The September 30, 2013 Decision and June 2, 2014
Resolution of the Court of Appeals in CA-G.R. CV No. 98861 are AFFIRMED.
112
G.R. No. 194515
SPOUSES OSCAR AND GINA GIRO NELLA, Petitioners,
vs.
PHILIPPINE NATIONAL BANK, Respondent.
We have here a Petition for Review on Certiorari under Rule 45 of. the Rules of Court assailing the Decision1 dated 27
August 2010 of the Court of Appeals (CA) in CA-G.R. CV No. 83870 which reversed and set aside the Decision 2 of the
Regional Trial Court (RTC), Branch 44, Dagupan City in Civil Case No. 2000-0099-D. The RTC granted the complaint of
petitioners, the Spouses Oscar and Gina Gironella (Spouses Gironella), against respondent Philippine National Bank
(PNB) for: (1) the proper construction of eyents between the parties relative to the proposed Restructuring Agreement;
(2) fraud, gross negligence, and/or at the very least, abuse of right under Article 19, 20 and 21 of the Civil Code; and
(3) corollary thereto, payment of actual and compensatory damages, moral, attorney’s fees and litigation expenses.
In separate Credit Agreements respectively dated 11 November 1991 and 16 January 1992, the Spouses Gironella
obtained two (2) loans from PNB in the amounts of Php7,500,000.00 and Php2,000,000.00 for the construction of the
Dagupan Village Hotel and Sports Complex. The loans were co-terminus, both payable on installments and secured by
the same real estate mortgage over a parcel of land covered by Transfer Certificate of Title (TCT) No. 56059 in favor
of the creditor, PNB.
In May 1992, seeking to expand their hotel operations, the Spouses Gironella again applied for another loan with PNB
in the amount of. Php5,800,000.00 for the construction of a restaurant bar and the purchase of a generator set.
From these front events, the dealings between the parties turned into the present case.
The Spouses Gironella began to default in paying their prior two (2) loans. They would aver, in their complaint until
this petition, that their default in payment is attributable to PNB whose representatives and officers made them believe
that their Php5,800,000.00 loan application would be approved and directed them to proceed with their expansion
plans. To that end and with the full knowledge of the PNB's officers and representatives, the Spouses Gironella used
the income generated by the hotel for the construction of the restaurant bar and purchase of the generator set while
the Php5,800,000.00 loan was pending and still being processed. In their Complaint, the Spouses Gironella alleged:
[PNB's] officers and representatives gave their assurance to the [Spouses Gironella] that the said loan will be approved
by [PNB] and even directed the [Spouses Gironella] to make use of the· funds being generated by Dagupan Village
Hotel for the said purposes, which the [Spouses Gironella] did, but seriously affected the servicing of their first loan.
[The Spouses Gironella] then proposed a restructuring of their first loan and after a series of meetings, offers and
counter offers, the [Spouses Gironella] accepted the offer of [PNB] to their proposed program (sic) to restructure the
loan which for all intents and purposes was already perfected.3
From the period of February 1993 to 2 October 1995, the Spouses Gironella paid a total of Php4,219,000.00 on their
first two loans of Php9,500,000.00. In January and April 1998, the Spouses Gironella likewise paid PNB Phpl,000,000.00
and Phpl,650,000.00. They maintain that all these payments were made to effect the restructuring of their loans with
PNB.
Meanwhile, in separate instances, on 29 May 1996 and 1 7 April 1998, while the parties were negotiating and discussing
the restructuring of the Spouses Gironella's loans, PNB made a couple of attempts to foreclose the mortgaged property.
It filed a Petition for the Extra-Judicial Foreclosure thereof and subsequently, a Notice of Extra-Judicial Foreclosure
Sale. However, the final foreclosure of the mortgaged property was stalled because of the continuing negotiations
between the parties for the restructuring of the loans.
By the year 2000, negotiations for the restructuring of the Spouses Gironella's loans was still ongoing and remained
indefinite. On 25 January 2000, after several exchange of correspondence, PNB wrote the Spouses . Gironella and
proposed, thus:
May we now have your written final conformity with the proposed restructuring of your account by way of:
Capitalization of the P9,485,620.00, part of the accrued interest as of December 14, 1999 for consolidation with the
outstanding P9,500,000.00 unpaid principal to aggregate Pl4,380,000.00;
Restructuring of this P14,380,000.00 into a fullysecured 10 year term loan payable quarterly under thefollowing
scheme;
• grace period on the payment of the principal only for Eight (8) quarters.
• amortization for the 1st to gth quarters be based on accrued interest due.
• amortization from the 9th up to the 39th quarter to be based on a 15-year payment scheme with balloon
payment on the 40th quarter.
Restructuring of P8,120,000.00, the other part of the accrued interest as of December 14, 2000, on clean basis to
be payable quarterly for five (5) years with amortization from 1st to 19th quarters based on a 15-year payment
scheme and balloon payment on the 20th quarter.
Interest, net of capitalization, to be paid from December 14, 1999 up to date of implementation,
This proposed restructuring is still subject for evaluation and approval of higher management and
therefore tentative in nature.4
In a letter dated 7 February 2000, the Spouses Gironella gave a qualified acceptance of PNB's proposed restructuring,
specifically referring · to specific terms in the 25 January 2000 proposal of PNB.
However, in its 8 March 2000 letter, PNB rejected finally the counter offer of the Spouses Gironella for the restructuring
of their loan.
On 25 July 2000, PNB re-filed its Petition for Extra-Judicial Foreclosure of the mortgaged property.
Forthwith, the Spouses Gironella filed the Complaint before the RTC with prayer for issuance of a Temporary Restraining
Order (TRO) and preliminary injunction to enjoin enforcement of the original credit agreements, and security therefor,
between the parties. Effectively, the Spouses Gironella sought to enjoin the 'foreclosure of the mortgaged property .
On 4 and 28 September 2000, the RTC issued the prayed for TRO and Writ of Preliminary injunction.
Subsequently, the RTC granted the Complaint of the Spouses Gironella ruling that there was a perfected and binding
restructured credit agreement, the terms contained in the 25 January 2000 and 7 February 2000 written exchanges of
the parties:
WHEREFORE, judgment is rendered in favor of [petitioners] Oscar Gironella and Gina F. Gironella and against
[respondent] Philippine National Bank, as follows:
1. On the first and third causes of action, judgment is rendered ordering [PNB] to pay [the Spouses Gironella], the
following:
a) P5,000,000.00 and PI00,000.00 a month as actual and compensatory damages;
b) P2,000,000.00 as moral damages;
c) PS00,000.00 as and for Attorney's fees, plus Pl0,000.00 for every conference or hearing as Appearance Fees;
and
113
d) P250,000.00 as litigation expenses.
2. On the second cause of action, the [ c ]ourt declares the restructuring of the subject loan pursuant to the letter of
[PNB] dated January 25i 2000, Exhibit U for [the Spouses Gironella], and Exhibit 2 for [PNB], and [the Spouses
Gironella's] letter dated February 7, 2000, Exhibit V for the [Spouses Gironella],. and Exhibit 3 for [PNB], as perfected
and binding upon the parties.
[PNB] is ordered to pay the costs of suit.5
On Motion for Partial Reconsideration and/or Clarification filed by the Spouses Gironella, the RTC clarified that the
payment of Phpl00,000.00 a month as actual and compensatory damages is reckoned from the filing of the Amended
Complaint on 25 September 2002. In addition, the R TC declared permanent the writ of preliminary injunction it had
previously issued, effectively enjoining the enforcement of the original credit agreements and the accessory contract,
the real estate mortgage over the land covered by TCT No. 56059.
Posthaste, PNB appealed to the CA questioning the trial court's ruling. PNB argued that the exchange of correspondence
between the parties, specifically the 25 January 2000 and 7 February 2000 letters, did not constitute a perfected and
binding restructuring agreement since there was no express acceptance by either party of the other's counter-offer.
PNB averred that it, in fact, finally rejected the restructuring proposal of the Spouses Gironella on 8 March 2000.
The appellate court granted the appeal of PNB and reversed the ruling of the trial court. The CA ruled that the Spouses
Gironella, apart from their bare allegations, failed to present evidence required in civil cases, i.e. by a preponderance
of evidence, to establish their claim that PNB fraudulently and in gross negligence and/or, in abuse of right, gave them
false hopes and assurances that their third loan would be approved in violation of Articles 19, 20 and 21 of the Civil
Code thereby entitling them to damages. The appellate court ruled, thus:
In civil cases, he who alleges a fact has the burden of proving it by a preponderance of evidence. Aside from the
surmises of [the Spouses Gironella] that they were given false hope and assurances by [PNB's] officers, the [Spouses
Gironella] in this case failed to show proof preponderant enough to sway this [ c ]ourt in their favor.
As compared to the other transactions and negotiation entered into between the parties herein which were very much
documented, the [Spouses Gironella] failed to present any documentary evidence relevant to their claims of fraud,
gross negligence, and abuse of right against the (PNB 's] officers. The records of the instant case are wanting of any
proof that would substantiate the [Spouses Gironella' s] claim that they were assured by [PNB' s] officers that the
additional loan application will be approved and that it was agreed upon that the income of the hotel will be used for
the construction of the disco-restaurant and the purchase of the generator set for the meantime.
It must also be noted that [the Spouses Gironella] contracted two previous loans from [PNB] even before the additional
loan subject of this case was applied for.1âwphi1 Thus, not being their first time to enter into a loan with a bank, the
[Spouses Gironella] are already very much aware of the process being observed in obtaining a loan from such kind of
institution. Gina Gironella even wrote in her 7 August 1992 letter to Mr. Alfredo S. Besa, Manager of the PNB Dagupan
Branch, that:
Dear Mr. Besa:
I was very much elated over the information relayed to me by my father, thru our Resident Manager, William Crossly,
regarding the profound concern and interest shown by your Vice-President for Northern Luzon Branches Pedrito D.
Torres towards the Dagupan Village Hotel and Sports Center. I understand that VP Torres was also convinced that
the construction of the additional function hall and night club would, indeed, upgrade the revenueearning capacity of
the hotel, thus reportedly giving his assent for the immediate commencement of the project.
 In this connection, therefore, may I reiterate our appeal manifested in our previous letters for the approval of our
additional loan application with which to underwrite the above project which was started almost two months ago,
and the purchase of a 125 ... generating set.
In the above letter, [petitioner] Gina Gironella appears to be mindful that a formal approval is necessary for their
application to be considered as finally approved. Thus, when the [Spouses Gironella] undertook to initiate the
construction of the disco-restaurant and the purchase of the generator set even without the formal approval of their
additional loan, the [Spouses Gironella] did it at their own risk.6
On the finding of the trial court that the correspondence between the parties embodied in the 25 January 2000 and 7
February 2000 letters of PNB and the Spouses Gironella, respectively, constituted the restructuring agreement, the
appellate court found that there was no final agreement reached by the parties where the offer was certain and
acceptance thereof by the other party was absolute. The appellate court held that, in this case, a qualified acceptance
equated to a counter-offer and, at that point, there was no absolute and unqualified acceptance which is identical in all
respects with that of the offer so as to produce consent or meeting of the minds.
Hence, this appeal by certiorari of the Spouses Gironella insisting on the correctness of the trial court's ruling.
We deny the petition and affirm the appellate court's ruling.
The Spouses Gironella claim fraud, gross negligence and/or, at the very least, abuse of right in violation of Articles 19,
20 and 21 of the Civil Code when PNB, essentially, twice did not approve their loan applications:
(1) the additional loan of Php5,800,000.00 for their businesses' expansion plans, and (2) restructuring of their original
credit agreements, despite purported assurances and representations of approval by PNB 's officers and
representatives.· The Spouses Gironella maintain that these actuations of PNB through its officers and representatives
constituted fraud, gross negligence and/or abuse of right in its dealings thus entitling the Spouses Gironella to
damages, actual and compensatory, moral, attorney's fees and litigation expenses.
Incredibly, the RTC adopted in full the stance and allegations of the Spouses Gironella, without a shred of evidence or
reference thereto in the ratiocination of its ruling:
It should be noted that [PNB's] act of continuously giving positive assurances to the [Spouses Gironella] and giving
them false hopes that the additional loan will be approved and eventually informing them later that the same was
disapproved by the higher management is a clear indication of fraud and gross negligence. If it were not for [PNB 's]
continuous assurances that the loan will be approved, the [Spouses Gironella] would not have participated in the
negotiations with PNB officers and representatives, thus dispensing with the preparation and submission of various
documents, financial reports and other demands. The [ c ]ourt agrees with the stand of the [Spouses Gironella] that
if it were for [PNB's] directive to direct the use of the funds generated by the hotel to construct [the] disco-restaurant
purchase of the generator set (sic), the servicing and/or payment of the original loan should. not have been affected.
The records would show that [PNB] misled the [Spouses Gironella] into believing that the additional loan of 5.8 Million
Pesos would be approved. It should be stated in this connection that the payments for the first loan Php9,500,000.00
would have come from the funds generated by the hotel. There is no doubt that the [Spouses Gironella] applied for
an additional loan of P5,800,000.00 for the purpose of constructing the disco-restaurant and purchase of generator
set. The hotel fund was used for the above-cited purpose and that was the reason instead of using the same to pay
[the Spouses Gironella's] obligation relative to the Php9,500,000.00 loan. [The Spouses Gironella's] acted in good
faith when they used the money to construct the disco-restaurant and purchase the generator set because of the
false assurances of [PNB] that the amount of Php5,800,000.00 loan would be approved. 7
The appellate court correctly did not give imprimatur to the foregoing ruling of the trial court given that nowhere therein
does the trial court refer to evidence to support its conclusions.
114
First. As plaintiffs, the Spouses Gironella had the duty, the burden of proof, to present evidence, required by law, on
the facts in issue necessary to establish their claim. 8 The trial court did not even name the bank officers and
representatives who gave "false hopes and assurances" to the Spouses Gironella. The trial court could have easily
specified the representations and statements of the bank officers and representatives which the Spouses Gironella
heavily relied upon. The Spouses Gironella's lack of evidence is further highlighted by the trial court's non-
sequitur statement that "[i]f it were not for [PNB' s] continuous assurances that the loan will be approved, the [Spouses
Gironella] would not have participated in the negotiations with PNB officers and representatives, thus dispensing with
the preparation and submission of various documents, financial reports and other demands." 9
Second. The foregoing statement fails to take into consideration the three (3) distinct stages of a contract: (1)
preparation or negotiation, (2) perfection, and finally, (3) consummation.10 At th'1;t point where the Spouses Gironella
were applying for the additional loan of Php5,800,000.00, that involved the negotiation stage for a contract separate
from the first two credit agreements which were consolidated into one, secured by the same real estate mortgage over
TCT No. 56059, both payable on installment and with the same term. Necessarily, the Spouses Gironella as debtors
applying for an. additional loan, ought to participate in the negotiations thereof and await PNB' s assessment and
processing of their additional loan application.
Discussion on the succeeding stages of a contract shall be done anon in relation to the alleged restructuring agreement.
Third. We find difficulty in accepting the Spouses Gironella's insistence that PNB' s officers and representatives
repeatedly assured them that their additional loan will be approved, apparently, without qualification.
In approving loans, credit accommodations and guarantees, PNB, as a bank, must still comply with banking laws and
conduct business in a safe and sound manner. Ultimately, PNB to comply with the General Banking Act 11 as amended,
the old statute and precursor to the present General Banking Law;12 must assess compliance by the Spouses Gironella
with specific legal banking requirements such as the Single Borrower's Limit. 13 Clearly, approval of the Spouses
Gironella's additional loan is not contingent solely on the purported representations of PNB's officers as claimed by the
former.
Fourth. From these very same bare allegations of the Spouses Gironella, the trial court, in upholding their stance,
considered the assurances given by PNB's officers that the additional loan will be approved as the evidence itself of
PNB' s supposed commission of fraud. In short, the Spouses Gironella proffer as evidence of fraud their own bare
allegations· which regrettably, the trial court echoed.
We cannot overemphasize that the burden of proof is upon the party who alleges bad faith or fraud.14 In this case, the·
Spouses Gironella's bare allegations that PNB' s officers assured them that their additional loan will be approved are
mere abstractions of fraud without specifics pointing to the actual commission of fraud.
We thus agree with the disquisition of the appellate court thereon:
In civil cases, he who alleges a fact has the burden of proving it by a preponderance of evidence. Aside from the
surmises of [the Spouses Gironella] that they were given false hopes and assurances by [PNB's] officers, the [Spouses
Gironella] in this. case failed to show proof preponderant enough to sway this [ c ]ourt in their favor.
As compared to the other transactions and negotiations entered into between the parties herein which were very
much documented, the [Spouses Gironella] failed to present any documentary evidence relevant to their claims of
fraud, gross negligence, and abuse of right against the [PNB' s] officers. The records of the instant case are wanting
of any proof that would substantiate the [Spouses Gironella's] claim that they were assured by [PNB's] officers that
the additional loan application will be approved and that it was agreed upon that the income of the hotel will be used
for the construction of the disco-restaurant and the purchase of the15 generator set for the meantime.
 The Spouses Gironella next contend that the parties already had a partially executed, if not perfected and binding,
restructuring agreement. embodied in their 7 February 2000 letter of acceptance of the offer and proposal contained
in PNB's 25 January 2000 letter. As with their first contention on the "false hopes and assurances" purportedly given
by PNB's officers and representatives to the Spouses Gironella, the trial court upheld them and found that there was
a perfected and binding restructuring agreement between the parties. Moreover, the Spouses Gironella assert that
since they have made substantial payments in pursuance of the restructuring agreement, or at the least under a
promise of restructuring the loan, there is effectively a partially executed restructuring agreement.
We cannot subscribe to the contention of the Spouses Gironella, albeit upheld by the trial court.
A contract is perfected by mere consent. 16 In turn, consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract. 17 The offer must be certain and the
acceptance seasonable and absolute.18 If qualified, the acceptance would merely constitute a counter-offer19 as what
occurred in this case.
To reach that moment of perfection, the parties must agree on the same thing in the same sense, so that their minds
meet as to all the terms.20 They must have a distinct intention common to both and without doubt or difference; until
all understand alike, there can be no assent, and therefore no contract. The minds of parties must meet at every
point; nothing can be left open for further arrangement. So long as there is any uncertainty or indefiniteness, or
future negotiations or considerations to be had between the parties, there is not a completed contract, and in fact,
there is no contract at all.21
The Spouses Gironella's payments under its original loan account cannot be considered as partial execution of the
proposed restructuring loan agreement. They were clearly made during the pendency of the negotiations on the
restructuring. Such pendency proves, absence, not presence of an agreement ready for execution. At the time of
payments only petitioners' obligation under the original credit agreements were in existence. Indeed, the payment
scheme under the proposed restructuring was outlined by PNB only in the letter of 25 January 2000.
Further on this, negotiation begins from the time the prospective contracting parties manifest their interest in the
contract and ends at the moment of agreement of the parties. Once there is concurrence of the offer and acceptance
of the object and cause, the stage of negotiation is finished. 22 This situation does not obtain in the case at bar. The
letter dated 25 January . 2000 of PNB was qualifiedly accepted by the Spouses Gironella as contained in their 7 February
2000 letter and constituted a counter-offer which PNB ultimately rejected in its 8 March 2000 letter. The surrounding
circumstances clearly show that the parties were not past the stage of negotiation for the terms and conditions of the
restructured loan agreements.
There was no meeting of the minds on the restructuring of the loans. Thus, the Spouses Gironella's original
Php9,500,000.00 loan agreement subsists.
In all, we affirm the appellate court's ruling, PNB is not liable either for fraud, gross negligence or abuse of right. It did
not breach any agreement there having been no restructured loan agreement at all that was perfected.
Consequently, the PNB is not liable to pay the Spouses Gironella any form of damages.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated 27 August 2010 in CA-G.R. CV No.
83870 is AFFIRMED. The Decision and Order dated 23 June 2004 and 28 September 2004 of the Regional Trial Court,
Branch 44, Dagupan City are REVERSED and SET ASIDE. The Amended Complaint of the petitioners, Oscar and Gina
Gironella, is DISMISSED.
115
G.R. No. 103338 January 4, 1994
FEDERICO SERRA, petitioner,
vs.
THE HON. COURT OF APPEALS AND RIZAL COMMERCIAL BANKING CORPORATION, respondents.
A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral
promise to buy and sell a determinate thing for a price certain is binding upon the promisor if the promise is supported
by a consideration distinct from the price. (Article 1479, New Civil Code) The first is the mutual promise and each has
the right to demand from the other the fulfillment of the obligation. While the second is merely an offer of one to
another, which if accepted, would create an obligation to the offeror to make good his promise, provided the acceptance
is supported by a consideration distinct from the price.
Disputed in the present case is the efficacy of a "Contract of Lease with Option to Buy", entered into between petitioner
Federico Serra and private respondent Rizal Commercial Banking Corporation. (RCBC).
Petitioner is the owner of a 374 square meter parcel of land located at Quezon St., Masbate, Masbate. Sometime in
1975, respondent bank, in its desire to put up a branch in Masbate, Masbate, negotiated with petitioner for the purchase
of the then unregistered property. On May 20, 1975, a contract of LEASE WITH OPTION TO BUY was instead forged by
the parties, the pertinent portion of which reads:
1. The LESSOR leases unto the LESSEE, an the LESSEE hereby accepts in lease, the parcel of land described in the
first WHEREAS clause, to have and to hold the same for a period of twenty-five (25) years commencing from June 1,
1975 to June 1, 2000. The LESSEE, however, shall have the option to purchase said parcel of land within a period of
ten (10) years from the date of the signing of this Contract at a price not greater than TWO HUNDRED TEN PESOS
(P210.00) per square meter. For this purpose, the LESSOR undertakes, within such ten-year period, to register said
parcel of land under the TORRENS SYSTEM and all expenses appurtenant thereto shall be for his sole account.
If, for any reason, said parcel of land is not registered under the TORRENS SYSTEM within the aforementioned ten-
year period, the LESSEE shall have the right, upon termination of the lease to be paid by the LESSOR the market
value of the building and improvements constructed on said parcel of land.
The LESSEE is hereby appointed attorney-in-fact for the LESSOR to register said parcel of land under the TORRENS
SYSTEM in case the LESSOR, for any reason, fails to comply with his obligation to effect said registration within
reasonable time after the signing of this Agreement, and all expenses appurtenant to such registration shall be
charged by the LESSEE against the rentals due to the LESSOR.
2. During the period of the lease, the LESSEE covenants to pay the LESSOR, at the latter's residence, a monthly
rental of SEVEN HUNDRED PESOS (P700.00), Philippine Currency, payable in advance on or before the fifth (5th) day
of every calendar month, provided that the rentals for the first four (4) months shall be paid by the LESSEE in
advance upon the signing of this Contract.
3. The LESSEE is hereby authorized to construct as its sole expense a building and such other improvements on said
parcel of land, which it may need in pursuance of its business and/or operations; provided, that if for any reason the
LESSEE shall fail to exercise its option mentioned in paragraph (1) above in case the parcel of land is registered
under the TORRENS SYSTEM within the ten-year period mentioned therein, said building and/or improvements, shall
become the property of the LESSOR after the expiration of the 25-year lease period without the right of
reimbursement on the part of the LESSEE. The authority herein granted does not, however, extend to the making or
allowing any unlawful, improper or offensive used of the leased premises, or any use thereof, other than banking and
office purposes. The maintenance and upkeep of such building, structure and improvements shall likewise be for the
sole account of the LESSEE. 1
The foregoing agreement was subscribed before Notary Public Romeo F. Natividad.
Pursuant to said contract, a building and other improvements were constructed on the land which housed the branch
office of RCBC in Masbate, Masbate. Within three years from the signing of the contract, petitioner complied with his
part of the agreement by having the property registered and placed under the TORRENS SYSTEM, for which Original
Certificate of Title No. 0-232 was issued by the Register of Deeds of the Province of Masbate.
Petitioner alleges that as soon as he had the property registered, he kept on pursuing the manager of the branch to
effect the sale of the lot as per their agreement. It was not until September 4, 1984, however, when the respondent
bank decided to exercise its option and informed petitioner, through a letter, 2 of its intention to buy the property at
the agreed price of not greater than P210.00 per square meter or a total of P78,430.00. But much to the surprise of
the respondent, petitioner replied that he is no longer selling the property. 3
Hence, on March 14, 1985, a complaint for specific performance and damages were filed by respondent against
petitioner. In the complaint, respondent alleged that during the negotiations it made clear to petitioner that it intends
to stay permanently on property once its branch office is opened unless the exigencies of the business requires
otherwise. Aside from its prayer for specific performance, it likewise asked for an award of P50,000.00 for attorney's
fees P100,000.00 as exemplary damages and the cost of the suit.4
A special and affirmative defenses, petitioner contended:
1. That the contract having been prepared and drawn by RCBC, it took undue advantage on him when it set in
lopsided terms.
2. That the option was not supported by any consideration distinct from the price and hence not binding upon him.
3. That as a condition for the validity and/or efficacy of the option, it should have been exercised within the reasonable
time after the registration of the land under the Torrens System; that its delayed action on the option have forfeited
whatever its claim to the same.
4. That extraordinary inflation supervened resulting in the unusual decrease in the purchasing power of the currency
that could not reasonably be forseen or was manifestly beyond the contemplation of the parties at the time of the
establishment of the obligation, thus, rendering the terms of the contract unenforceable, inequitable and to the undue
enrichment of RCBC. 5
and as counterclaim petitioner alleged that:
1. The rental of P700.00 has become unrealistic and unreasonable, that justice and equity will require its adjustment.
2. By the institution of the complaint he suffered moral damages which may be assessed at P100,000.00 and award
of attorney's fee of P25,000.00 and exemplary damages at P100,000.00.6
Initially, after trial on the merits, the court dismissed the complaint. Although it found the contract to be valid, the
court nonetheless ruled that the option to buy in unenforceable because it lacked a consideration distinct from the price
and RCBC did not exercise its option within reasonable time. The prayer for readjustment of rental was denied, as well
as that for moral and exemplary damages.7
Nevertheless, upon motion for reconsideration of respondent, the court in the order of January 9, 1989, reversed itself,
the dispositive portion reads:
WHEREFORE, the Court reconsiders its decision dated June 6, 1988, and hereby renders judgment as follows:
1. The defendant is hereby ordered to execute and deliver the proper deed of sale in favor of plaintiff selling,
transferring and
conveying the property covered by and described in the Original Certificate of Title 0-232 of the Registry of Deeds
of Masbate for the sum of Seventy Eight Thousand Five Hundred Forty Pesos (P78,540,00), Philippine Currency;
2. Defendant is ordered to pay plaintiff the sum of Five Thousand (P5,000.00) Pesos as attorney's fees;
3. The counter claim of defendant is hereby dismissed; and
116
4. Defendants shall pay the costs of suit.8
In a decision promulgated on September 19, 1991,9 the Court of Appeals affirmed the findings of the trial court that:
1. The contract is valid and that the parties perfectly understood the contents thereof;
2. The option is supported by a distinct and separate consideration as embodied in the agreement;
3. There is no basis in granting an adjustment in rental.
Assailing the judgment of the appellate court, petitioner would like us to consider mainly the following:
1. The disputed contract is a contract of adhesion.
2. There was no consideration to support the option, distinct from the price, hence the option cannot be exercised.
3. Respondent court gravely abused its discretion in not granting currency adjustment on the already eroded value
of the stipulated rentals for twenty-five years.
The petition is devoid of merit.
There is no dispute that the contract is valid and existing between the parties, as found by both the trial court and the
appellate court. Neither do we find the terms of the contract unfairly lopsided to have it ignored.
A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the contract, while
the other party merely affixes his signature or his "adhesion" thereto. These types of contracts are as binding as
ordinary contracts. Because in reality, the party who adheres to the contract is free to reject it entirely. Although, this
Court will not hesitate to rule out blind adherence to terms where facts and circumstances will show that it is basically
one-sided. 10
We do not find the situation in the present case to be inequitable. Petitioner is a highly educated man, who, at the time
of the trial was already a CPA-Lawyer, and when he entered into the contract, was already a CPA, holding a respectable
position with the Metropolitan Manila Commission. It is evident that a man of his stature should have been more
cautious in transactions he enters into, particularly where it concerns valuable properties. He is amply equipped to
drive a hard bargain if he would be so minded to.
Petitioner contends that the doctrines laid down in the cases of Atkins Kroll v. Cua Hian Tek, 11 Sanchez
v. Rigos, 12 and Vda. de Quirino v. Palarca 13 were misapplied in the present case, because 1) the option given to the
respondent bank was not supported by a consideration distinct from the price; and 2) that the stipulated price of "not
greater than P210.00 per square meter" is not certain or definite.
Article 1324 of the Civil Code provides that when an offeror has allowed the offeree a certain period to accept, the offer
maybe withdrawn at anytime before acceptance by communicating such withdrawal, except when the option is founded
upon consideration, as something paid or promised. On the other hand, Article 1479 of the Code provides that an
accepted unilateral promise to buy and sell a determinate thing for a price certain is binding upon the promisor if the
promise is supported by a consideration distinct from the price.
In a unilateral promise to sell, where the debtor fails to withdraw the promise before the acceptance by the creditor,
the transaction becomes a bilateral contract to sell and to buy, because upon acceptance by the creditor of the offer
to sell by the debtor, there is already a meeting of the minds of the parties as to the thing which is determinate and
the price which is certain. 14 In which case, the parties may then reciprocally demand performance.
Jurisprudence has taught us that an optional contract is a privilege existing only in one party — the buyer. For a
separate consideration paid, he is given the right to decide to purchase or not, a certain merchandise or property, at
any time within the agreed period, at a fixed price. This being his prerogative, he may not be compelled to exercise
the option to buy before the time expires. 15
On the other hand, what may be regarded as a consideration separate from the price is discussed in the case of Vda. de
Quirino v. Palarca 16 wherein the facts are almost on all fours with the case at bar. The said case also involved a lease
contract with option to buy where we had occasion to say that "the consideration for the lessor's obligation to sell the
leased premises to the lessee, should he choose to exercise his option to purchase the same, is the obligation of the
lessee to sell to the lessor the building and/or improvements constructed and/or made by the former, if he fails to
exercise his option to buy leased premises." 17
In the present case, the consideration is even more onerous on the part of the lessee since it entails transferring of the
building and/or improvements on the property to petitioner, should respondent bank fail to exercise its option within
the period stipulated. 18
The bugging question then is whether the price "not greater than TWO HUNDRED PESOS" is certain or definite. A price
is considered certain if it is so with reference to another thing certain or when the determination thereof is left to the
judgment of a specified person or persons. 19 And generally, gross inadequacy of price does not affect a contract of
sale. 20
Contracts are to be construed according to the sense and meaning of the terms which the parties themselves have
used. In the present dispute, there is evidence to show that the intention of the parties is to peg the price at P210 per
square meter. This was confirmed by petitioner himself in his testimony, as follows:
Q. Will you please tell this Court what was the offer?
A. It was an offer to buy the property that I have in Quezon City (sic).
Q. And did they give you a specific amount?
A. Well, there was an offer to buy the property at P210 per square meters (sic).
Q. And that was in what year?
A . 1975, sir.
Q. And did you accept the offer?
A. Yes, sir. 21
Moreover, by his subsequent acts of having the land titled under the Torrens System, and in pursuing the bank manager
to effect the sale immediately, means that he understood perfectly the terms of the contract. He even had the same
property mortgaged to the respondent bank sometime in 1979, without the slightest hint of wanting to abandon his
offer to sell the property at the agreed price of P210 per square meter. 22
Finally, we agree with the courts a quo that there is no basis, legal or factual, in adjusting the amount of the rent. The
contract is the law between the parties and if there is indeed reason to adjust the rent, the parties could by themselves
negotiate for the amendment of the contract. Neither could we consider the decline of the purchasing power of the
Philippine peso from 1983 to the time of the commencement of the present case in 1985, to be so great as to result in
an extraordinary inflation. Extraordinary inflation exists when there in an unimaginable increase or decrease of the
purchasing power of the Philippine currency, or fluctuation in the value of pesos manifestly beyond the contemplation
of the parties at the time of the establishment of the obligation. 23
Premises considered, we find that the contract of "LEASE WITH OPTION TO BUY" between petitioner and respondent
bank is valid, effective and enforceable, the price being certain and that there was consideration distinct from the price
to support the option given to the lessee.
WHEREFORE, this petition is hereby DISMISSED, and the decision of the appellate court is hereby AFFIRMED.
117
G.R. No. 196182 September 1, 2014
ECE REALTY AND DEVELOPMENT INC., Petitioner,
vs.
RACHEL G. MANDAP, Respondent.
Before the Court is a petition for review on certiorari assailing the Decision 1 and Resolution2 of the Court of Appeals
(CA), dated July 21, 2010 and March 15, 2011, respectively, in CA-G.R. SP No. 100741.
Herein petitioner is a corporation engaged in the building and development of condominium units. Sometime in 1995,
it started the construction of a condominium project called Central Park Condominium Building located along Jorge St.,
Pasay City. However, printed advertisements were made indicating therein that the said project was to be built in
Makati City.3 In December 1995, respondent, agreed to buy a unit from the above project by paying a reservation fee
and, thereafter, downpayment and monthly installments. On June 18, 1996, respondent and the representatives of
petitioner executed a Contract to Sell.4 In the said Contract, it was indicated that the condominium project is located
in Pasay City.
More than two years after the execution of the Contract to Sell, respondent, through her counsel, wrote petitioner a
letter dated October 30, 1998 demanding the return of ₱422,500.00, representing the payments she made, on the
ground that she subsequently discovered that the condominium project was being built in Pasay City and not in Makati
City as indicated in its printed advertisements.5
However, instead of answering respondent's letter, petitioner sent her a written communication dated November 30,
1998 informing her that her unit is ready for inspection and occupancy should she decide to move in. 6
Treating the letter as a form of denial of her demand for the return of the sum she had paid to petitioner, respondent
filed a complaint with the Expanded National Capital Region Field Office (ENCRFO) of the Housing and Land Use
Regulatory Board (HLURB) seeking the annulment of her contract with petitioner, the return of her payments, and
damages.7
On September 30, 2005, the ENCRFO dismissed respondent's complaint for lack of merit and directedthe parties to
resume the fulfillment of the terms and conditions of their sales contract. The ENCRFO held that respondent "failed to
show or substantiate the legal grounds that consist of a fraudulent or malicious dealing with her by the [petitioner],
such as, the latter's employment of insidious words or machinations which induced or entrapped her into the contract
and which, without them, would not have encouraged her to buy the unit."8
Respondent filed a petition for review with the HLURB Board of Commissioners questioning the decision of the ENCRFO.
On April 25, 2006, the HLURB Board of Commissioners rendered judgment dismissing respondent's complaint and
affirming the decision of the ENCRFO.9 Giving credence to the Contract to Sell executed by petitioner and respondent,
the Board of Commissioners held that when the parties reduced their contract in writing, their rights and duties must
befound in their contract and neither party can place a greater obligation than what the contract provides.
Aggrieved, respondent filed an appeal with the Office of the President. On June 21, 2007, the Office of the President
dismissed respondent's appeal and affirmed in totothe decision of the HLURB Board of Commissioners. 10 Respondent
filed a Motion for Reconsideration,11 but the Office of the President denied it in a Resolution12 dated August 29, 2007.
Respondent then filed a petition for review with the CA.13
On July 21, 2010, the CA promulgated its assailed Decision, the dispositive portion of which reads, thus:
WHEREFORE, premises considered, We hereby REVERSEand SET ASIDEthe Decision and the Resolution dated June
21, 2007 and August 29, 2007, respectively, issued by the Office of the President in OP Case No. 06-F-224.
Accordingly, the contract between Rachel G. Mandap and ECE Realty is hereby ANNULLED. Consequently, ECE Realty
is ordered to return the total amountof ₱422,500.00 representing payments made by Rachel G. Mandap on
reservation fee, [downpayment] and monthly installments on the condominium unit, with legal interest thereon at
twelve percent (12%) per annumfrom the date of filing of action until fully paid.
The CA held that petitioner employed fraud and machinations to induce respondent to enter into a contract with it. The
CA also expressed doubt on the due execution of the Contract to Sell between the parties.
Petitioner filed a Motion for Reconsideration, but the CA denied it in its March 15, 2011 Resolution.
Hence, the present petition for review on certiorariwith the following Assignment of Errors:
I. The Court of Appeals gravely erred in ruling that there was fraud in the execution of the subject contract to sell
and declaring the same as annulled and ordering petitioner ECE to refund all payments made by respondent.
II. The Court of Appeals erred in ordering the award of legal interest at the rate of 12% per annum starting from the
filing of the complaint until fully paid when legal interest should have been pegged at 6%. 15
The Court finds the petition meritorious.
The basic issue in the present caseis whether petitioner was guilty of fraud and if so, whether such fraud is sufficient
ground to nullify its contract with respondent.
Article 1338 of the Civil Code provides that "[t]here is fraud when through insidious words or machinationsof one of
the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed
to."
In addition, under Article 1390 of the same Code, a contract is voidable or annullable "where the consent is vitiated by
mistake, violence, intimidation, undue influence or fraud."
Also, Article 1344 of the same Codeprovides that "[i]n order that fraud may make a contract voidable, it should be
serious and should not have been employed by both contracting parties." Jurisprudence has shown that in order to
constitute fraud that provides basis to annul contracts, it must fulfill two conditions.
First, the fraud must be dolo causanteor it must be fraud in obtaining the consent of the party. 16 This is referred to as
causal fraud. The deceit must be serious. The fraud is serious when it is sufficient to impress, or to lead an ordinarily
prudent person into error; that which cannot deceive a prudent person cannot be a ground for nullity. 17 The
circumstances of each case should be considered, taking into account the personal conditions of the victim. 18
Second, the fraud must be proven by clear and convincing evidence and not merely by a preponderance thereof. 19
In the present case, this Court finds that petitioner is guilty of false representation of a fact. This is evidenced by its
printed advertisements indicating that its subject condominium project is located in Makati City when, in fact, it is in
Pasay City. The Court agrees with the Housing and Land Use Arbiter, the HLURB Board ofCommissioners, and the Office
of the President, in condemning petitioner's deplorable act of making misrepresentations in its advertisementsand in
issuing a stern warning that a repetition of this act shall bedealt with more severely.
118
However, insofar as the present case is concerned, the Court agrees with the Housing and Land Use Arbiter, the HLURB
Board of Commissioners, and the Office of the President, that the misrepresentation made by petitioner in its
advertisements does not constitute causal fraud which would have been a valid basis in annulling the Contract to Sell
between petitioner and respondent.
In his decision, the Housing and Land Use Arbiter found that respondent failed to show that "the essential and/or
moving factor that led the [respondent] to give her consent and agree to buy the unit was precisely the project's
advantageous or uniquelocation in Makati [City] – to the exclusion of other places or cityx x x." Both the HLURB Board
of Commissioners and the Office of the President affirmed the finding of the Arbiter and unanimously held that
respondent failed to prove that the location of the said project was the causal consideration or the principal inducement
which led her into buyingher unit in the said condominium project. The Court finds no cogent reason to depart from
the foregoing findings and conclusion of the above agencies. Indeed, evidence shows that respondent proceeded to
sign the Contract to Sell despite information contained therein that the condominium is located in Pasay City. This only
means that she still agreed to buy the subject property regardless of the fact that it is located in a place different from
what she was originally informed. If she had a problem with the property's location, she should not havesigned the
Contract to Sell and, instead, immediately raised this issue with petitioner. But she did not. As correctly observed by
the Office of the President, it took respondent more than two years from the execution of the Contract to Sell to demand
the return of the amount she paid on the ground that she was misled into believing that the subject property islocated
in Makati City. In the meantime, she continued to make payments.
The Court is not persuaded by the ruling of the CA which expresses doubt on the due execution of the Contractto Sell.
The fact remains that the said Contract to Sell was notarized. Itis settled that absent any clear and convincing proof to
the contrary, a notarized document enjoys the presumption of regularity and is conclusive as to the truthfulness of its
contents.20 Neither does the Court agree thatthe presumption of regularity accorded to the notarized Contract to Sell
was overcome by evidence to the contrary. Respondent's allegation that she signed the said Contract to Sell with
several blank spaces, and which allegedly did not indicate the location of the condominium, was not supported by
proof. The basic rule is that mere allegation is not evidence and is not equivalent to proof.21 In addition, the fact that
respondent made several payments prior to the execution of the subject Contract to Sell is not the kind of evidence
needed to overcome such presumption of regularity.
With respect to the foregoing discussions, the Court quotes with approval the disquisition of the Office of the President
on the credibility of the claims of petitioner and respondent, to wit:
We give credence to the version of [petitioner] ECE Realty considering that there is no cogent reason why this Office
could not rely on the truth and veracity of the notarized Contract to Sell. "Being a notarized document, it had in its
favorthe presumption of regularity, and to overcome the same, there must be evidence that is clear, convincing and
more than merely preponderant; otherwise, the document should be upheld. [Respondent] Mandap failed to
overcome this presumption.
The contention that Mandap signed the Contract to Sell in-blank, and [that] it was ECE Realty that supplied the details
on it is remarkably threadbare for no evidence was submitted to support such claim in all the proceedings before the
ENCRFO and the Board of Commissioners. It is only now that Mandap has belatedly submitted the Affidavit of Lorenzo
G. Tipon. This cannot be done without running afoul with the well-settled principle barring a party from introducing
fresh defenses and facts at the appellate stage. Moreover, the infirmity of affidavits as evidence is a matter of judicial
experience. It issettled that no undue importance shall be given to a sworn statement or affidavit as a piece of evidence
because being taken ex parte, an affidavit is almost always incomplete and inaccurate. Thus, absent, as here, of (sic)
any controverting evidence, it is reasonable to presume that Mandap knew the contents of the Contract to Sell which
was executed with legal formalities. The ruling in Bernardo vs. Court of Appeals is enlightening in this wise:
x x x. The rule that one who signs a contract is presumed to know its contentshas been applied even to contract of
illiterate persons on the ground that if such persons are unable to read, they are negligent if they fail to have the
contract read to them. If a person cannot read the instrument, it is as much his duty to procure some reliable persons
 to read and explain it tohim, before he signs it, as it would be to read it before he signed it if he were able to do so
and his failure to obtain a reading and explanation of it is such gross negligence as will estop him from avoiding it on
the ground that he was ignorant of its contents.22
In any case, even assuming that petitioner’s misrepresentation consists of fraud which could bea ground for annulling
their Contract to Sell, respondent's act of affixing her signatureto the said Contract, after having acquired knowledge
of the property's actual location, can be construed as an implied ratification thereof.
Ratification of a voidable contract is defined under Article 1393 of the Civil Code as follows:
Art. 1393. Ratification may be effected expressly or tacitly.1âwphi1 It is understood that there is a tacit ratification
if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who
has a right to invoke it should execute an act which necessarily implies an intention to waive his right.
Implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing approval or adoption
of the contract; or by acceptance and retention of benefits flowing therefrom. 23
Under Article 1392 of the Civil Code, "ratification extinguishes the action to annul a voidable contract." In addition,
Article 1396 of the same Code provides that "[r]atification cleanses the contract from all its defects from the moment
it was constituted."
Hence, based on the foregoing, the findings and conclusions of the Housing and Land Use Arbiter, the HLURB Board of
Commissioners and the Office of the President, should be sustained.
WHEREFORE, the instant petition is GRANTED. The Decision and Resolution of the Court of Appeals, dated July 21,
2010 and March 15, 2011, respectively, are REVERSEDand SET ASIDE. The September 30, 2005 Decision of the
Expanded National Capital Region Field Office of the Housing and Land Use Regulatory Board, which dismisses
respondent's complaint and directs petitioner and respondent to resume the fulfillment of their sales contract, is
REINSTATED.
119
G.R. No. 103959 August 21, 1997
SPOUSES REGALADO SANTIAGO and ROSITA PALABYAB, JOSEFINA ARCEGA, petitioners,
vs.
THE HON. COURT OF APPEALS; THE HON. CAMILO C. MONTESA, JR., Presiding Judge of the RTC of Malolos,
Bulacan, Branch 19, and QUIRICO ARCEGA, respondents.
Assailed in this petition for review under Rule 45 is the November 8, 1991 Decision of respondent Court of Appeals in
CA-G.R. CV No. 25069. It affirmed in toto the judgment of Branch 19, Regional Trial Court of Malolos, Bulacan, in Civil
Case No. 8470-M. The action therein sought to declare null and void the "Kasulatan Ng Bilihang Tuluyan Ng Lupa"
executed on July 18, 1971 by the late Paula Arcega, sister of private respondent, in favor of herein petitioners over a
parcel of land consisting of 927 square meters, situated in Barangay Tabing Ilog, Marilao, Bulacan.
Paula Arcega was the registered owner of that certain parcel of land covered by Transfer Certificate of Title No. T-
115510. Her residential house stood there until 1970 when it was destroyed by a strong typhoon.
On December 9, 1970, Paula Arcega executed what purported to be a deed of conditional sale over the land in favor
of Josefina Arcega and the spouses Regalado Santiago and Rosita Palabyab, the petitioners herein, for and in
consideration of P20,000.00. The vendees were supposed to pay P7,000.00 as downpayment. It was expressly provided
that the vendor would execute and deliver to the vendees an absolute deed of sale upon full payment by the vendees
of the unpaid balance of the purchase price of P13,000.00.
Subsequently, on July 18, 1971, supposedly upon payment of the remaining balance, Paula Arcega executed a deed of
absolute sale of the same parcel of land in favor of petitioners. Thereupon, on July 20, 1971, TCT No. T-115510, in the
name of Paula Arcega, was cancelled and a new title, TCT No. T-148989 was issued in the name of petitioners.
On April 10, 1985, Paula Arcega died single and without issue, leaving as heirs his two brothers, Narciso Arcega 1 and
private respondent Quirico Arcega.
Incidentally, before Paula Arcega died, a house of four bedrooms with a total floor area of 225 square meters was built
over the parcel of land in question. Significantly, the master's bedroom, with toilet and bath, was occupied by Paula
Arcega until her death despite the execution of the alleged deed of absolute sale. The three other bedrooms, smaller
than the master's bedroom, were occupied by the petitioners who were the supposed vendees in the sale.
Private respondent Quirico Arcega, as heir of his deceased sister, filed on October 24, 1985 Civil Case No. 8470-M
before the RTC of Malolos, Bulacan, seeing to declare null ad void the deed of sale executed by his sister during her
lifetime in favor of the petitioners on the ground that said deed was fictitious since the purported consideration therefor
of P20,000.00 was not actually paid by the vendees to his sister.
Answering the complaint before the RTC, petitioner spouses averred that private respondent's cause of action was
already barred by the statute of limitations considering that the disputed deed of absolute sale was executed in their
favor on July 18, 1971, by which TCT No. 148989 was issued on July 20, 1971, while private respondent's complaint
was filed in court only on October 24, 1985 or more than fourteen (14) years from the time the cause of action accrued.
Petitioners also deny that the sale was fictitious. They maintain that the purchase price was actually paid to Paula
Arcega and that said amount was spent by the deceased in the construction of her three-door apartment on the parcel
of land in question.
Josefina Arcega, the other petitioner, was declared in default for failure to file her answer within the reglementary
period.
After trial, the RTC rendered judgment in favor of private respondent Quirico Arcega, viz.:
(a) Declaring as null and void and without legal force and effect the "Kasulatan Ng Bilihang Tuluyan Ng Lupa" dated
July 18, 1971 executed by the deceased Paula Arcega covering a parcel of land embraced under TCT No. T-115510
in favor of the defendants;
(b) Declaring TCT No. T-148989 issued and registered in the names of defendants Josefina Arcega and spouses
Regalado Santiago and Rosita Palabyab as null and void;
(c) Ordering the reconveyance of the property including all improvements thereon covered by TCT No. T-115510 now
TCT No. T-148989, to the plaintiff, subject to real estate mortgage with the Social Security System; and
(d) To pay jointly and severally the amount of P10,000.00 as attorney's fees.
On the counterclaim, the same is hereby dismissed for lack of legal and/or factual basis (p. 6, decision, pp. 295-300,
rec.).2
In ruling for private respondent, the trial court, as affirmed in toto by the public respondent Court of Appeals, found
that:
On the basis of the evidence adduced, it appears that plaintiff Quirico Arcega and his brother Narciso Arcega are the
only surviving heirs of the deceased Paula Arcega who on April 10, 1985 died single and without issue. Sometime in
1970, a strong typhoon destroyed the house of Paula Arcega and the latter together with the defendants decided to
construct a new house. All the defendants 3 being members of the SSS, Paula Arcega deemed it wise to lend her title
to them for purposes of loan with the SSS. She executed a deed of sale to effect the transfer of the property in the
name of defendants and thereafter the later mortgaged the same for P30,000.00 but the amount actually released
was only P25,000.00. Paula Arcega spent the initial amount of P30,000.000 out of her savings for the construction
of the house sometime in 1971 and after the same and the proceeds of the loan were exhausted, the same was not
as yet completed. Paula Arcega and her brothers sold the property which they inherited for P45,000.00 and the same
all went to the additional construction of the house, however, the said amount is not sufficient. Thereafter, Paula
Arcega and her brothers sold another property which they inherited for P805,950.00 and one third (1/3) thereof went
to Paula Arcega which she spent a portion of which for the finishing touches of the house. The house as finally finished
in 1983 is worth more than P100,000.00 with a floor area of 225 square meters consisting of four bedrooms. A big
master's bedroom complete with a bath and toilet was occupied by Paula Arcega up to the time of her death on April
10, 1985 and the other three smaller bedrooms are occupied by spouses, defendants Regalado Santiago and Rosita
Palabyab, and Josefina Arcega. After the death of Paula Arcega defendant Josefina Arcega and Narciso Arcega
constructed their own house at back portion of the lot in question.
There is a clear indication that the deed of sale which is unconscionably low for 937 square meters in favor of the
defendants sometime on July 18, 1971 who are all members of the SSS, is merely designed as an accommodation
for purposes of loan with the SSS. Paula Arcega cognizant of the shortage of funds in her possession in the amount
of P30,000.00, deemed it wise to augment her funds for construction purposes by way of a mortgage with the SSS
which only defendants could possibly effect they being members of the SSS. Since the SSS requires the collateral to
be in the name of the mortgagors, Paula Arcega executed a simulated deed of sale (Kasulatan ng Bilihang Tuluyan
ng Lupa) for P20,000.00 dated July 18, 1971 in favor of the defendants and the same was notarized by Atty. Luis
Cuvin who emphatically claimed that no money was involved in the transaction as the parties have other agreement.
The allegations of the defendants that the property was given to them (Kaloob) by the deceased has no evidentiary
value. While it is true that Rosita Palabyab stayed with the deceased since childhood, the same cannot be said with
respect to defendant Josefina Arcega, distant relative and a niece of the wife of Narciso Arcega, who stayed with the
deceased sometime in 1966 at the age of 19 years and already working as a saleslady in Manila. Did the deceased
indeed give defendant Josefina Arcega half of her property out of love and gratitude? Such circumstance appears
illogical if not highly improbable. As a matter of fact defendant Josefna Arcega in her unguarded moment unwittingly
120
told the truth that the couple (Regalado Santiago and Rosita Palabyab) had indeed borrowed the title and then
mortgaged the same with the SSS as shown in her direct testimony which reads:
Atty. Villanueva:
Q Why did you say that the house is owned by the spouses Santiago but the lot is bought by you and Rosita?
A Because at that time, the couple4 borrowed the title and then mortgaged the property with the SSS. There is only
one title but both of us owned it. (TSN dtd. 19 Oct '88, p. 5)5
On appeal, the public respondent Court of Appeals dismissed the same, affirming in all respects the RTC judgment.
Hence, this petition.
The petition is unmeritorious.
Verily, this case is on all fours with Suntay v. Court of Appeals. 6 There, a certain Federico Suntay was the registered
owner of a parcel of land in Sto. Niño, Hagonoy, Bulacan. A rice miller, Federico applied on September 30, 1960 as a
miller-contractor of the then National Rice and Corn Corporation (NARIC), but his application was disapproved because
he was tied up with several unpaid loans. For purposes of circumvention, he thought of allowing his nephew-lawyer,
Rafael Suntay, to make the application for him. To achieve this, Rafael prepared a notarized Absolute Deed of Sale
whereby Federico, for and in consideration of P20,000.00, conveyed to Rafael said parcel of land with all its existing
structures. Upon the execution and registration of said deed, Certificate of Title No. 0-2015 in the name of Federico
was cancelled and, in lieu thereof, TCT No. T-36714 was issued in the name of Rafael. Sometime in the months of June
to August, 1969,7 Federico requested Rafael to deliver back to him the owner's duplicate of the transfer certificate of
title over the properties in question for he intended to use the property as collateral in securing a bank loan to finance
the expansion of his rice mill. Rafael, however, without just cause, refused to deliver the title insisting that said property
was "absolutely sold and conveyed [to him] . . . for a consideration of P20,000.00, Philippine currency, and for other
valuable consideration." We therein ruled in favor of Federico Suntay and found that the deed of sale in question was
merely an absolutely simulated contract for the purpose of accommodation and therefore void. In retrospect, we
observed in that case:
Indeed the most protuberant index of simulation is the complete absence of an attempt in any manner on the part
of the late Rafael to assert his rights of ownership over the land and rice mill in question. After the sale, he should
have entered the land and occupied the premises thereof. He did not even attempt to. If he stood as owner, he would
have collected rentals from Federico for the use and occupation of the land and its improvements. All that the late
Rafael had was a title in his name.
. . . The fact that, notwithstanding the title transfer, Federico remained in actual possession, cultivation and
occupation of the disputed lot from the time the deed of sale was executed until the present, is a circumstance which
is unmistakably added proof of the fictitiousness of the said transfer, the same being contrary to the principle of
ownership.8
In the case before us, while petitioners were able to occupy the property in question, they were relegated to a small
bedroom without bath and toilet, 9 while Paula Arcega remained virtually in full possession of the completed house and
lot using the big master's bedroom with bath and toilet up to the time of her death on April 10, 1985. 10 If, indeed, the
transaction entered into by the petitioners and the late Paula Arcega on July 18, 1971 was a veritable deed of absolute
sale, as it was purported to be, then Ms. Arcega had no business whatsoever remaining in the property and, worse, to
still occupy the big master's bedroom with all its amenities until her death on April 10, 1985. Definitely, and legitimate
vendee of real property who paid for the property with good money will not accede to an arrangement whereby the
vendor continues occupying the most favored room in the house while he or she, as new owner, endures the disgrace
and absurdity of having to sleep in a small bedroom without bath and toilet as if he or she is a guest or a tenant in the
house. In any case, if petitioners really stood as legitimate owners of the property, they would have collected rentals
from Paula Arcega for the use and occupation of the master's bedroom as she would then be a mere lessee of the
property in question. However, not a single piece of evidence was presented to show that this was the case. All told,
the failure of petitioners to take exclusive possession of the property allegedly sold to them, or in the alternative, to
collect rentals from the alleged vendee Paula Arcega, is contrary to the principle of ownership and a clear badge of
simulation that renders the whole transaction void and without force and effect, pursuant to Article 1409 of the New
Civil Code:
The following contracts are inexistent and void from the beginning:
(2) Those which are absolutely simulated or fictitious;
The conceded fact that subject deed of absolute sale executed by Paula Arcega in favor of petitioners is a notarized
document does not justify the petitioners' desired conclusion that said sale is undoubtedly a true conveyance to which
the parties thereto are irrevocably and undeniably bound. To be considered with great significance is the fact that Atty.
Luis Cuvin who notarized the deed disclaimed the truthfulness of the document when he testified that "NO MONEY WAS
INVOLVED IN THE TRANSACTION." 11 Furthermore, though the notarization of the deed of sale in question vests in its
favor the presumption of regularity, it is not the intention nor the function of the notary public to validate and make
binding an instrument never, in the first place, intended to have any binding legal effect upon the parties thereto. The
intention of the parties still is and always will be the primary consideration in determining the true nature of a contract.
Here, the parties to the "Kasulatan ng Bilihang Tuluyan ng Lupa," as shown by the evidence and accompanying
circumstances, never intended to convey the property thereto from one party to the other for valuable consideration.
Rather, the transaction was merely used to facilitate a loan with the SSS with petitioners-mortgagors using the property
in question, the title to which they were able to register in their names through the simulated sale, as collateral.
The fact that petitioners were able to secure a title in their names, TCT No. 148989, did not operate to vest upon
petitioners ownership over Paula Arcega's property. That act has never been recognized as a mode of acquiring
ownership. As a matter of fact, even the original registration of immovable property does not vest title thereto. 12 The
Torrens system does not create or vest title. It only confirms and records title already existing and vested. It does not
protect a usurper from the true owner. It cannot be a shield for the commission of fraud. It does not permit one to
enrich himself at the expense of another. 13 Where one does not have any rightful claim over a real property, the
Torrens system of registration can confirm or record nothing.
Petitioners, nevertheless, insist that both the trial court and the respondent court should have followed the Parole
Evidence Rule and prevented evidence, like the testimony of Notary Public, Atty. Luis Cuvin, private respondent Quirico
Arcega, among others, which impugned the two notarized deeds of sale.
The rule on parole evidence under Section 9, Rule 130 is qualified by the following exceptions:
However, a party may present evidence to modify, explain or add to the terms of the written agreement if he puts
in issue in his pleading:
(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;
(b) The failure of the written agreement to express the true intent and agreement of the parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their successors in interest after the execution of the
written agreement.
The term "agreement" includes wills."
In this case, private respondent Quirico Arcega was able to put in issue in his complaint before the Regional Trial Court
the validity of the subject deeds of sale for being a simulated transaction:
6. That in 1971, the defendants, who by then were already employed in private firms and had become members of
the Social Security System by virtue of their respective employments, decided among themselves to build a new
121
house on the property of PAULA ARCEGA above described and to borrow money from the Social Security System to
finance the proposed construction.
7. That in order to secure the loan from the Social Security System it was necessary that the lot on which the
proposed house would be erected should be registered and titled in the names of the defendants.
xxx xxx xxx
9. That in conformity with the above plans and schemes of the defendants, they made PAULA ARCEGA execute and
sign a fictitious, hence null and void "KASULATAN NG BILIHANG TULUYAN NG LUPA" on July 18, 1971, before Notary
Public LUIS CUVIN, of Bulacan and entered in his register as Doc. No. 253, Page No. 52, Book No. XIX, Series of
1971, by which PAULA ARCEGA purportedly conveyed(sic) in favor of the defendants JOSEFINA ARCEGA and the
spouse REGALADO SANTIAGO and ROSITA PALABYAB, the whole parcel of land above described for the sum of
TWENTY THOUSAND (P20,000.00), as consideration which was not actually, then or thereafter paid either wholly or
partially. A copy of said document is hereto attached as Annex "B" and made integral part hereof.
10. That defendants pursuing their unlawful scheme registered the said void and inexistent "KASULATAN NG
BILIHANG TULUYAN NG LUPA" with the office of the Register of Deeds of Bulacan, procured the cancellation of
Transfer Certificate of Title No. 115510, in the name of PAULA ARCEGA and the issuance of Transfer Certificate of
Title No. 148989, in their names, a xeroxed copy of which is hereto attached as Annex "C" and made integral part
hereof.
11. That still in furtherance of their unjust and unlawful schemes, defendants secured a loan from the Social Security
System in the amount of P30,000.00, securing the payment thereof with a Real Estate Mortgage on the above-
described property then already titled in their names as aforestated (pp. 2-3, complaint, pp. 1-5, rec.). 14
Moreover, the parol evidence rule may be waived by failure to invoke it, as by failure to object to the introduction of
parol evidence. And, where a party who is entitled to the benefit of the rule waives the benefit thereof by allowing such
evidence to be received without objection and without any effort to have it stricken from the minutes or disregarded
by the trial court, he cannot, after the trial has closed and the case has been decided against him, invoke the rule in
order to secure a reversal of the judgment by an appellate court. 15 Here, the records are devoid of any indication that
petitioners ever objected to the admissibility of parole evidence introduced by the private respondent in open court.
The court cannot disregard evidence which would ordinarily be incompetent under the rules but has been rendered
admissible by the failure of a party to object thereto. 16 Petitioners have no one to blame but themselves in this regard.
Finally, petitioners argue that private respondent's complaint filed before the trial court on October 24, 1985 is already
barred by the statute of limitations and laches considering that the deed of absolute sale was executed in their favor
by the deceased Paula Arcega on July 20, 1971. Indeed, more than fourteen (14) years had elapsed from the time his
cause of action accrued to the time that the complaint was filed. Articles 1144 and 1391 of the New Civil Code provide:
Art. 1141. The following actions must be brought within ten years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
Art. 1391. The action for annulment shall be brought within four years.
This period shall begin:
In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases.
In cases of mistake or fraud, from the time of the discovery of the same.
And when the action refers to contracts entered into by minors or other incapacitated persons, from the time the
guardianship ceases.
This submission is utterly without merit, the pertinent provision being Article 1410 of the New Civil Code which provides
unequivocably that "[T]he action or defense for the declaration of the inexistence of a contract does not prescribe." 17
As for laches, its essence is the failure or neglect, for an unreasonable and unexplained length of time to do that which, G.R. No. 175483
by exercising due diligence, could or should have been done earlier; it is the negligence or omission to assert a right
within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or VALENTINA S. CLEMENTE, Petitioner
declined to assert it. 18 But there is, to be sure, no absolute rule as to what constitutes laches or staleness of demand; vs.
each case is to be determined according to its particular circumstances. The question of laches is addressed to the THE COURT OF APPEALS, ANNIE SHOTWELL JALANDOON, et al., Respondents
sound discretion of the court, and since laches is an equitable doctrine, its application is controlled by equitable
considerations. It cannot be worked to defeat justice or to perpetrate fraud and injustice. 19 In the case under
consideration, it would not only be impractical but well-nigh unjust and patently inequitous to apply laches against This is a Petition for Review on Certiorari1 under Rule 45 of the Revised Rules of Court filed by Valentina S. Clemente
private respondent and vest ownership over a valuable piece of real property in favor of petitioners by virtue of an ("petitioner") from the Decision2 of August 23, 2005 and the Resolution3 dated November 15, 2006 of the Court of
absolutely simulated deed of sale never, in the first place, meant to convey any right over the subject property. It is Appeals (CA) Eighth Division in CA-G.R. CV No. 70918.
the better rule that courts, under the principle of equity, will not be guided or bound strictly by the statute of limitations
or the doctrine of laches when to do so, manifest wrong or injustice would result. 20 Petitioner assails the Decision of the CA which ruled that two (2) deeds of absolute sale executed between petitioner
and Adela de Guzman Shotwell ("Adela"), her grandmother, are void and inexistent for being simulated and lacking
WHEREFORE, premises considered, the petition is hereby DENIED with costs against petitioners. consideration. The CA affirmed the Decision of the Regional Trial Court (RTC) of Quezon City, Branch 89, but deleted
the holding of the latter that an implied trust existed.

Adela owned three (3) adjoining parcels of land in Scout Ojeda Street, Diliman, Quezon City, subdivided as Lots 32, 34
and 35-B (the "Properties"). Among the improvements on the Properties was Adela’s house (also referred to as the
"big house"). During her lifetime, Adela allowed her children, namely, Annie Shotwell Jalandoon, Carlos G. Shotwell
("Carlos Sr."), Anselmo G. Shotwell and Corazon S. Basset, and her grandchildren, 4 the use and possession of the
Properties and its improvements.5

Sometime in 1985 and 1987, Adela simulated the transfer of Lots 32 and Lot 34 to her two grandsons from Carlos Sr.,
namely, Carlos V. Shotwell, Jr. ("Carlos Jr.") and Dennis V. Shotwell. 6 As a consequence, Transfer Certificate of Title
(TCT) No. 338708/PR 9421 was issued over Lot 32 under the name of Carlos Jr., while TCT No. 366256/PR 9422 was
issued over Lot 34 under the name of Dennis.7 On the other hand, Lot 35-B remained with Adela and was covered by
TCT No. 374531. It is undisputed that the transfers were never intended to vest title to Carlos Jr. and Dennis who both
will return the lots to Adela when requested.8

On April 18, 1989, prior to Adela and petitioner’s departure for the United States, Adela requested Carlos Jr. and Dennis
to execute a deed of Reconveyance9 over Lots 32 and 34. The deed of reconveyance was executed on the same day
and was registered with the Registry of Deeds on April 24, 1989.10

On April 25, 1989, Adela executed a deed of absolute sale 11 over Lots 32 and 34, and their improvements, in favor of
petitioner, bearing on its face the price of 250,000.00. On the same day, Adela also executed a special power of
attorney12 (SPA) in favor of petitioner. Petitioner’s authority under the SPA included the power to administer, take
charge and manage, for Adela’s benefit, the Properties and all her other real and personal properties in the
Philippines.13 The deed of absolute sale and the SPA were notarized on the same day by Atty. Dionilo D. Marfil in
Quezon City.14

On April 29, 1989, Adela and petitioner left for the United States. 15 When petitioner returned to the Philippines, she
registered the sale over Lots 32 and 34 with the Registry of Deeds on September 25, 1989. TCT No. 19811 and TCT
No. 19809 were then issued in the name of petitioner over Lots 32 and 34, respectively.16

On January 14, 1990, Adela died in the United States and was succeeded by her four children. 17

Soon thereafter, petitioner sought to eject Annie and Carlos Sr., who were then staying on the Properties. Only then
did Annie and Carlos Sr. learn of the transfer of titles to petitioner. Thus, on July 9, 1990, Annie, Carlos Sr. and
Anselmo, represented by Annie, ("private respondents") filed a complaint for reconveyance of property 18 against

122
petitioner before Branch 89 of the RTC of Quezon City. It was docketed as Civil Case No. Q-90-6035 and titled "Annie
S. Jalandoon, et al. v. Valentina Clemente."19
In the course of the trial, private respondents discovered that Adela and petitioner executed another deed of absolute
sale20 over Lot 35-B on April 25, 1989 (collectively with the deed of absolute sale over Lots 32 and 34, "Deeds of
Absolute Sale"), bearing on its face the price of 60,000.00.21 This was notarized on the same date by one Orancio
Generoso in Manila, but it was registered with the Registry of Deeds only on October 5, 1990.22 Thus, private
respondents amended their complaint to include Lot 35-B.23
In their amended complaint, private respondents sought nullification of the Deeds of Absolute Sale. They alleged that
Adela only wanted to help petitioner travel to the United States, by making it appear that petitioner has ownership of
the Properties. They further alleged that similar to the previous simulated transfers to Carlos Jr. and Dennis, petitioner
also undertook and warranted to execute a deed of reconveyance in favor of the deceased over the Properties, if and
when Adela should demand the same. They finally alleged that no consideration was given by petitioner to Adela in
exchange for the simulated conveyances.24
On October 3, 1997, Carlos Sr. died and was substituted only by Dennis. 25 In an order dated June 18, 1999, the case
was dismissed with respect to Annie after she manifested her intention to withdraw as a partyplaintiff.26 Anselmo
Shotwell also died without any compulsory heir on September 7, 2000.
On February 26, 2001, the trial court promulgated a Decision27 in favor of private respondents. Its decretal portion
reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Declaring null and void the Deeds of Absolute Sale both dated April 25, 1989 between the late Adela De Guzman
Shotwell and the defendant;
2. Ordering the cancellation of Transfer Certificates of Title Nos. 19809, 19811 and 26558, all of the Registry of
Deeds of Quezon City and in the name of defendant Valentina Clemente; and
3. Ordering the defendant to execute a Deed of Reconveyance in favor of the estate of the late Adela de Guzman
Shotwell over the three (3) subject lots, respectively covered by Transfer Certificates of Title Nos. 19809, 19811
and 26558 of the Registry of Deeds of Quezon City; With costs against defendant.
On appeal, the CA affirmed with modification the Decision. The CA ruled that the Deeds of Absolute Sale were simulated.
It also ruled that the conveyances of the Properties to petitioner were made without consideration and with no intention
to have legal effect.29
The CA agreed with the trial court that the contemporaneous and subsequent acts of petitioner and her grandmother
are enough to render the conveyances null and void on the ground of being simulated. 30 The CA found that Adela
retained and continued to exercise dominion over the Properties even after she executed the conveyances to
petitioner.31 By contrast, petitioner did not exercise control over the properties because she continued to honor the
decisions of Adela. The CA also affirmed the court a quo’s finding that the conveyances were not supported by any
consideration.32
Petitioner filed a Motion for Reconsideration33 dated September 12, 2005 but this was denied by the CA in its
Resolution34 dated November 15, 2006.
Hence, this petition. The petition raises the principal issue of whether or not the CA erred in affirming the decision of
the trial court, that the Deeds of Absolute Sale between petitioner and her late grandmother over the Properties are
simulated and without consideration, and hence, void and inexistent. 35
123
Ruling of the Court
We deny the petition.
In a Petition for Review on Certiorari under Rule 45, only questions of law may be entertained.
Whether or not the CA erred in affirming the decision of the RTC that the Deeds of Absolute Sale between petitioner
and her late grandmother are simulated and without consideration, and hence, void and inexistent, is a question of
fact which is not within the province of a petition for review on certiorari under Rule 45 of the Revised Rules of Court.
Section 1, Rule 45 of the Revised Rules of Court states that the petition filed shall raise only questions of law, which
must be distinctly set forth. We have explained the difference between a question of fact and a question of law, to wit:
A question of law arises when there is doubt as to what the law is on a certain state of facts, while there is a question
of fact when the doubt arises as to the truth or falsity of the alleged facts. For a question to be one of law, the same
must not involve an examination of the probative value of the evidence presented by the litigants or any of them. The
resolution of the issue must rest solely on what the law provides on the given set of circumstances. Once it is clear
that the issue invites a review of the evidence presented, the question posed is one of fact. 36
Most of the issues raised by petitioner are questions of fact that invite a review of the evidence presented by the parties
below. We have repeatedly ruled that the issue on the genuineness of a deed of sale is essentially a question of
fact.37 We are not a trier of facts and do not normally undertake the re-examination of the evidence presented by the
contending parties during the trial of the case.38 This is especially true where the trial court's factual findings are
adopted and affirmed by the CA as in the present case.39 Factual findings of the trial court affirmed by the CA are final
and conclusive and may not be reviewed on appeal.40 While it is true that there are recognized exceptions41 to the
general rule that only questions of law may be entertained in a Rule 45 petition, we find that there is none obtaining
in this case.
Nevertheless, and to erase any doubt on the correctness of the assailed ruling, we examined the records below and
have arrived at the same conclusion.1âwphi1 Petitioner has not been able to show that the lower courts committed
error in appreciating the evidence of record.
The Deeds of Absolute Sale between petitioner and the late Adela Shotwell are null and void for lack of consent and
consideration.
While the Deeds of Absolute Sale appear to be valid on their face, the courts are not completely precluded to consider
evidence aliunde in determining the real intent of the parties. This is especially true when the validity of the contracts
was put in issue by one of the parties in his pleadings. 42 Here, private respondents assail the validity of the Deeds of
Absolute Sale by alleging that they were simulated and lacked consideration.
A. Simulated contract
The Civil Code defines a contract as a meeting of minds between two persons whereby one binds himself, with respect
to the other, to give something or to render some service. 43 Article 1318 provides that there is no contract unless the
following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract; and
(3) Cause of the obligation which is established.
All these elements must be present to constitute a valid contract; the absence of one renders the contract void. As one
of the essential elements, consent when wanting makes the contract non-existent. Consent is manifested by the
meeting of the offer and the acceptance of the thing and the cause, which are to constitute the contract. 44 A contract
of sale is perfected at the moment there is a meeting of the minds upon the thing that is the object of the contract,
and upon the price.45
Here, there was no valid contract of sale between petitioner and Adela because their consent was absent. The contract
of sale was a mere simulation.
Simulation takes place when the parties do not really want the contract they have executed to produce the legal effects
expressed by its wordings.46 Article 1345 of the Civil Code provides that the simulation of a contract may either be
absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the
parties conceal their true agreement. The case of Heirs of Policronio M. Ureta, Sr. v. Heirs of Liberato M. Ureta 47 is
instructive on the matter of absolute simulation of contracts, viz:
In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be
bound by it. The main characteristic of an absolute simulation is that the apparent contract is not really desired or
intended to produce legal effect or in any way alter the juridical situation of the parties. As a result, an absolutely
simulated or fictitious contract is void, and the parties may recover from each other what they may have given under
the contract...48 (Emphasis supplied)
In short, in absolute simulation there appears to be a valid contract but there is actually none because the element of
consent is lacking.49 This is so because the parties do not actually intend to be bound by the terms of the contract.
In determining the true nature of a contract, the primary test is the intention of the parties. If the words of a contract
appear to contravene the evident intention of the parties, the latter shall prevail. Such intention is determined not only
from the express terms of their agreement, but also from the contemporaneous and subsequent acts of the
parties.50 This is especially true in a claim of absolute simulation where a colorable contract is executed.
In ruling that the Deeds of Absolute Sale were absolutely simulated, the lower courts considered the totality of the
prior, contemporaneous and subsequent acts of the parties. The following circumstances led the RTC and the CA to
conclude that the Deeds of Absolute Sale are simulated, and that the transfers were never intended to affect the
juridical relation of the parties:
a) There was no indication that Adela intended to alienate her properties in favor of petitioner. In fact, the letter of
Adela to Dennis dated April 18, 198951 reveals that she has reserved the ownership of the Properties in favor of
Dennis.
b) Adela continued exercising acts of dominion and control over the properties, even after the execution of the Deeds
of Absolute Sale, and though she lived abroad for a time. In Adela’s letter dated August 25, 1989 52 to a certain
Candy, she advised the latter to stay in the big house. Also, in petitioner’s letter to her cousin Dennis dated July 3,
1989,53 she admitted that Adela continued to be in charge of the Properties; that she has no "say" when it comes to
the Properties; that she does not intend to claim exclusive ownership of Lot 35-B; and that she is aware that the
ownership and control of the Properties are intended to be consolidated in Dennis.
c) The SPA executed on the same day as the Deeds of Absolute Sale appointing petitioner as administratrix of Adela’s
properties, including the Properties, is repugnant to petitioner’s claim that the ownership of the same had been
transferred to her.
d) The previous sales of the Properties to Dennis and Carlos, Jr. were simulated. This history, coupled with Adela’s
treatment of petitioner, and the surrounding circumstances of the sales, strongly show that Adela only granted
petitioner the same favor she had granted to Dennis and Carlos Jr.
124
The April 18, 1989 letter to Dennis convincingly shows Adela’s intention to give him the Properties. Part of the letter
reads: "Dennis, the two lot [sic] 32-34 at your said lower house will be at name yours [sic] plus the 35 part of Cora or
Teens [sic] house are all under your name."54 Petitioner claims this letter was not properly identified and is thus,
hearsay evidence. The records, however, show that the letter was admitted by the trial court in its Order dated February
24, 1993.55 While it is true that the letter is dated prior (or six days before to be exact) to the execution of the Deeds
of Absolute Sale and is not conclusive that Adela did not change her mind, we find that the language of the letter is
more consistent with the other pieces of evidence that show Adela never intended to relinquish ownership of the
Properties to petitioner. In this regard, we see no compelling reason to depart from the findings of the trial court as
there appears no grave abuse of discretion in its admission and consideration of the letter.
Petitioner’s letter to her cousin Dennis dated July 3, 1989 also sufficiently establishes that Adela retained control over
the Properties, even after the execution of the Deeds of Absolute Sale. Petitioner herself admitted that she was only
following the orders of Adela, and that she has no claim over the Properties. We quote in verbatim the relevant part of
the letter:
…Now, before I left going back here in Mla. Mommy Dela ask me to read your letter about the big house and lot, and
I explained it to her. Now Mommy and Mommy Dela wants that the house is for everyone who will need to stay, well
that is what they say. Alam mo naman, I have no "say" esp. when it comes with properties & you know
that. Now kung ano gusto nila that goes. Now, to be honest Mommy was surprise [sic] bakit daw kailangan
mawalan ng karapatan sa bahay eh Nanay daw nila iyon at tayo apo lang, Eh wala akong masasabi dyan, to be
truthful to you, I only get the orders… Tapos, sinisingil pa ako ng P1,000 – para sa gate na pinapagawa nya sa
lot 35-B, eh hindi na lang ako kumibo pero nagdamdam ako, imagine minsan na lang sya nakagawa ng bien sa akin
at wala sa intention ko na suluhin ang 35-B, ganyan pa sya… Now tungkol sa iyo, alam ko meron ka rin
lupa tapos yung bahay na malaki ikaw rin ang titira at magmamahala sa lahat. Anyway, itong bahay ko sa
iyo rin, alam mo naman na I’m just making the kids grow a little older then we have to home in the
states…56 (Emphasis supplied)
Moreover, Adela’s letter to petitioner’s cousin Candy dated August 25, 1989 shows Adela’s retention of dominion over
the Properties even after the sales. In the letter, Adela even requested her granddaughter Candy to stay in the house
rent and expense free.57 Petitioner claims that Candy and the house referred to in the letter were not identified. Records
show, however, that petitioner has testified she has a cousin named Candy Shotwell who stayed at the "big house"
since February 1989.58
Clearly, the submission of petitioner to the orders of Adela does not only show that the latter retained dominion over
the Properties, but also that petitioner did not exercise acts of ownership over it. If at all, her actions only affirm the
conclusion that she was merely an administratrix of the Properties by virtue of the SPA.
On the SPA, petitioner claims the lower courts erred in holding that it is inconsistent with her claim of ownership.
Petitioner claims that she has sufficiently explained that the SPA is not for the administration of the Properties, but for
the reconstitution of their titles.
We agree with the lower courts that the execution of an SPA for the administration of the Properties, on the same day
the Deeds of Absolute Sale were executed, is antithetical to the relinquishment of ownership. The SPA shows that it is
so worded as to leave no doubt that Adela is appointing petitioner as the administratrix of her properties in Scout
Ojeda. Had the SPA been intended only to facilitate the processing of the reconstitution of the titles, there would have
been no need to confer other powers of administration, such as the collection of debts, filing of suit, etc., to
petitioner.59 In any case, the explanation given by petitioner that the SPA was executed so as only to facilitate the
reconstitution of the titles of the Properties is not inconsistent with the idea of her being the administratrix of the
Properties. On the other hand, the idea of assigning her as administratrix is not only inconsistent, but also repugnant,
to the intention of selling and relinquishing ownership of the Properties.
Petitioner next questions the lower courts’ findings that the Deeds of Absolute Sale are simulated because the previous
transfers to Adela’s other grandchildren were also simulated. It may be true that, taken by itself, the fact that Adela
had previously feigned the transfer of ownership of Lots 32 and 34 to her other grandchildren would not automatically
mean that the subject Deeds of Absolute Sale are likewise void. The lower courts, however, did not rely solely on this
fact, but considered it with the rest of the evidence, the totality of which reveals that Adela’s intention was merely to
feign the transfer to petitioner.
The fact that unlike in the case of Dennis and Carlos, Jr., she was not asked by Adela to execute a deed of reconveyance,
is of no moment. There was a considerable lapse of time from the moment of the transfer to Dennis and Carlos, Jr. of
Lots 32 and 34 in 1985 and in 1987, respectively, and until the execution of the deed of reconveyance in 1989. Here,
the alleged Deeds of Absolute Sale were executed in April 1989. Adela died in January 1990 in the United States. Given
the short period of time between the alleged execution of the Deeds of Absolute Sale and the sudden demise of Adela,
the fact that petitioner was not asked to execute a deed of reconveyance is understandable. This is because there was
no chance at all to do so. Thus, the fact that she did not execute a deed of reconveyance does not help her case.
We affirm the conclusion reached by the RTC and the CA that the evidence presented below prove that Adela did not
intend to alienate the Properties in favor of petitioner, and that the transfers were merely a sham to accommodate
petitioner in her travel abroad.
Article 1471 of the Civil Code provides that "if the price is simulated, the sale is void." Where a deed of sale states that
the purchase price has been paid but in fact has never been paid, the deed of sale is null and void for lack of
consideration.63 Thus, although the contracts state that the purchase price of 250,000.00 and 60,000.00 were paid by
petitioner to Adela for the Properties, the evidence shows that the contrary is true, because no money changed hands.
Apart from her testimony, petitioner did not present proof that she paid for the Properties.
There is no implied trust.
We also affirm the CA’s deletion of the pronouncement of the trial court as to the existence of an implied trust. The
trial court found that a resulting trust, a form of implied trust based on Article 1453 64 of the Civil Code, was created
between Adela and petitioner.
Resulting trusts65 arise from the nature or circumstances of the consideration involved in a transaction whereby one
person becomes invested with legal title but is obligated in equity to hold his title for the benefit of another. 66 It is
founded on the equitable doctrine that valuable consideration and not legal title is determinative of equitable title or
interest and is always presumed to have been contemplated by the parties.67 Since the intent is not expressed in the
instrument or deed of conveyance, it is to be found in the nature of the parties’ transaction. 68 Resulting trusts are thus
describable as intention-enforcing trusts.69 An example of a resulting trust is Article 1453 of the Civil Code.

Petitioner claims that we should consider that there is only one heir of the late Adela who is contesting the sale, and
that out of the many transactions involving the decedent’s other properties, the sale to petitioner is the only one being
questioned. We are not convinced that these are material to the resolution of the case. As aptly passed upon by the
CA in its assailed Resolution:
In a contest for the declaration of nullity of an instrument for being simulated, the number of contestants is not
determinative of the propriety of the cause. Any person who is prejudiced by a simulated contract may set up its
inexistence. In this instant case, it does not matter if the contest is made by one, some or all of the heirs.
Neither would the existence of other contracts which remain unquestioned deter an action for the nullity of an
instrument. A contract is rendered meaningful and forceful by the intention of the parties relative thereto, and such
intention can only be relevant to that particular contract which is produced or, as in this case, to that which is not
produced. That the deed of sale in [petitioner’s] favor has been held to be simulated is not indicative of the simulation
of any other contract executed by the deceased Adela de Guzman Shotwell during her lifetime. 60
To this we add that other alleged transactions made by Adela cannot be used as evidence to prove the validity of the
conveyances to petitioner.
We, however, agree with the CA that no implied trust can be generated by the simulated transfers because being
fictitious or simulated, the transfers were null and void ab initio – from the very beginning – and thus vested no rights
whatsoever in favor of petitioner. That which is inexistent cannot give life to anything at all. 70
Article 1453 contemplates that legal titles were validly vested in petitioner. Considering, however, that the sales lack
not only the element of consent for being absolutely simulated, but also the element of consideration, these transactions
are void and inexistent and produce no effect. Being null and void from the beginning, no transfer of title, both legal
and beneficial, was ever effected to petitioner.
In any case, regardless of the presence of an implied trust, this will not affect the disposition of the case. As void
contracts do not produce any effect, the result will be the same in that the Properties will be reconveyed to the estate
of the late Adela de Guzman Shotwell.
WHEREFORE, the petition is DENIED.

For one, we are not aware of any of these transactions or whether there are indeed other transactions. More
importantly, the validity of these transactions does not prove directly or indirectly the validity of the conveyances in
question.

B. No consideration for the sale

We also find no compelling reason to depart from the court a quo's finding that Adela never received the consideration
stipulated in the simulated Deeds of Absolute Sale.

Although on their face, the Deeds of Absolute Sale appear to be supported by valuable consideration, the RTC and the
CA found that there was no money involved in the sale. The consideration in the Deeds of Absolute Sale was
superimposed on the spaces therein, bearing a font type different from that used in the rest of the document. 61 The
lower courts also found that the duplicate originals of the Deeds of Absolute Sale bear a different entry with regard to
the price.62

125
G.R. No. 102784 February 28, 1996
ROSA LIM, petitioner,
vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
This is a petition to review the Decision of the Court of Appeals in CA-G.R. CR No. 10290, entitled "People v. Rosa Lim,"
promulgated on August 30, 1991.
On January 26, 1989, an Information for Estafa was filed against petitioner Rosa Lim before Branch 92 of the Regional
Trial Court of Quezon City.1 The Information reads:
That on or about the 8th day of October 1987, in Quezon City, Philippines and within the jurisdiction of this Honorable
Court, the said accused with intent to gain, with unfaithfulness and/or abuse of confidence, did, then and there,
wilfully, unlawfully and feloniously defraud one VICTORIA SUAREZ, in the following manner, to wit: on the date and
place aforementioned said accused got and received in trust from said complainant one (1) ring 3.35 solo worth
P169,000.00, Philippine Currency, with the obligation to sell the same on commission basis and to turn over the
proceeds of the sale to said complainant or to return said jewelry if unsold, but the said accused once in possession
thereof and far from complying with her obligation despite repeated demands therefor, misapplied, misappropriated
and converted the same to her own personal use and benefit, to the damage and prejudice of the said offended party
in the amount aforementioned and in such other amount as may be awarded under the provisions of the Civil Code.
After arraignment and trial on the merits, the trial court rendered judgment, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Finding accused Rosa Lim GUILTY beyond reasonable doubt of the offense of estafa as defined and penalized
under Article 315, paragraph 1(b) of the Revised Penal Code;
2. Sentencing her to suffer the Indeterminate penalty of FOUR (4) YEARS and TWO (2) MONTHS of prision
correccional as minimum, to TEN (10) YEARS of prision mayor as maximum;
3. Ordering her to return to the offended party Mrs. Victoria Suarez the ring or its value in the amount of P169,000
without subsidiary imprisonment in case insolvency; and
4. To pay costs.3
On appeal, the Court of Appeals affirmed the judgment of conviction with the modification that the penalty imposed
shall be six (6) years, eight (8) months and twenty-one (21) days to twenty (20) years in accordance with Article 315,
paragraph 1 of the Revised Penal Code.4
Petitioner filed a motion for reconsideration before the appellate court on September 20, 1991, but the motion was
denied in a Resolution dated November 11, 1991.
In her final bid to exonerate herself, petitioner filed the instant petition for review alleging the following grounds:
I. THE RESPONDENT COURT VIOLATED THE CONSTITUTION, THE RULES OF COURT AND THE DECISION OF THIS
HONORABLE COURT IN NOT PASSING UPON THE FIRST AND THIRD ASSIGNED ERRORS IN PETITIONER'S BRIEF;
II. THE RESPONDENT COURT FAILED TO APPLY THE PRINCIPLE THAT THE PAROL EVIDENCE RULE WAS WAIVED
WHEN THE PRIVATE PROSECUTOR CROSS-EXAMINED THE PETITIONER AND AURELIA NADERA AND WHEN
COMPLAINANT WAS CROSS-EXAMINED BY THE COUNSEL FOR THE PETITIONER AS TO THE TRUE NATURE OF THE
AGREEMENT BETWEEN THE PARTIES WHEREIN IT WAS DISCLOSED THAT THE TRUE AGREEMENT OF THE PARTIES
WAS A SALE OF JEWELRIES AND NOT WHAT WAS EMBODIED IN THE RECEIPT MARKED AS EXHIBIT "A" WHICH WAS
126
RELIED UPON BY THE RESPONDENT COURT IN AFFIRMING THE JUDGMENT OF CONVICTION AGAINST HEREIN
PETITIONER; and
III. THE RESPONDENT COURT FAILED TO APPLY IN THIS CASE THE PRINCIPLE ENUNCIATED BY THIS HONORABLE
COURT TO THE EFFECT THAT "ACCUSATION" IS NOT, ACCORDING TO THE FUNDAMENTAL LAW, SYNONYMOUS WITH
GUILT: THE PROSECUTION MUST OVERTHROW THE PRESUMPTION OF INNOCENCE WITH PROOF OF GUILT BEYOND
REASONABLE DOUBT. TO MEET THIS STANDARD, THERE IS NEED FOR THE MOST CAREFUL SCRUTINY OF THE
TESTIMONY OF THE STATE, BOTH ORAL AND DOCUMENTARY, INDEPENDENTLY OF WHATEVER DEFENSE IS OFFERED
BY THE ACCUSED. ONLY IF THE JUDGE BELOW AND THE APPELLATE TRIBUNAL COULD ARRIVE AT A CONCLUSION
THAT THE CRIME HAD BEEN COMMITTED PRECISELY BY THE PERSON ON TRIAL UNDER SUCH AN EXACTING TEST
SHOULD SENTENCE THUS REQUIRED THAT EVERY INNOCENCE BE DULY TAKEN INTO ACCOUNT. THE PROOF
AGAINST HIM MUST SURVIVE THE TEST OF REASON; THE STRONGEST SUSPICION MUST NOT BE PERMITTED TO
SWAY JUDGMENT. (People v. Austria, 195 SCRA 700)5
Herein the pertinent facts as alleged by the prosecution.
On or about October 8, 1987, petitioner Rosa Lim who had come from Cebu received from private respondent Victoria
Suarez the following two pieces of jewelry; one (1) 3.35 carat diamond ring worth P169,000.00 and one (1) bracelet
worth P170,000.00, to be sold on commission basis. The agreement was reflected in a receipt marked as Exhibit "A" 6 for
the prosecution. The transaction took place at the Sir Williams Apartelle in Timog Avenue, Quezon City, where Rosa
Lim was temporarily billeted.
On December 15, 1987, petitioner returned the bracelet to Vicky Suarez, but failed to return the diamond ring or to
turn over the proceeds thereof if sold. As a result, private complainant, aside from making verbal demands, wrote a
demand letter7 to petitioner asking for the return of said ring or the proceeds of the sale thereof. In response, petitioner,
thru counsel, wrote a letter8 to private respondent's counsel alleging that Rosa Lim had returned both ring and bracelet
to Vicky Suarez sometime in September, 1987, for which reason, petitioner had no longer any liability to Mrs. Suarez
insofar as the pieces of jewelry were concerned. Irked, Vicky Suarez filed a complaint for estafa under Article 315, par
l(b) of the Revised Penal Code for which the petitioner herein stands convicted.
Petitioner has a different version.
Rosa Lim admitted in court that she arrived in Manila from Cebu sometime in October 1987, together with one Aurelia
Nadera, who introduced petitioner to private respondent, and that they were lodged at the Williams Apartelle in Timog,
Quezon City. Petitioner denied that the transaction was for her to sell the two pieces of jewelry on commission basis.
She told Mrs. Suarez that she would consider buying the pieces of jewelry far her own use and that she would inform
the private complainant of such decision before she goes back to Cebu. Thereafter, the petitioner took the pieces of
jewelry and told Mrs. Suarez to prepare the "necessary paper for me to sign because I was not yet prepare (d) to buy
it."9 After the document was prepared, petitioner signed it. To prove that she did not agree to the terms of the receipt
regarding the sale on commission basis, petitioner insists that she signed the aforesaid document on the upper portion
thereof and not at the bottom where a space is provided for the signature of the person(s) receiving the jewelry. 10
On October 12, 1987 before departing for Cebu, petitioner called up Mrs. Suarez by telephone in order to inform her
that she was no longer interested in the ring and bracelet. Mrs. Suarez replied that she was busy at the time and so,
she instructed the petitioner to give the pieces of jewelry to Aurelia Nadera who would in turn give them back to the
private complainant. The petitioner did as she was told and gave the two pieces of jewelry to Nadera as evidenced by
a handwritten receipt, dated October 12, 1987. 11
Two issues need to be resolved: First, what was the real transaction between Rosa Lim and Vicky Suarez a contract of
agency to sell on commission basis as set out in the receipt or a sale on credit; and, second, was the subject diamond
ring returned to Mrs. Suarez through Aurelia Nadera?
Petitioner maintains that she cannot be liable for estafa since she never received the jewelries in trust or on commission
basis from Vicky Suarez. The real agreement between her and the private respondent was a sale on credit with Mrs.
Suarez as the owner-seller and petitioner as the buyer, as indicated by the bet that petitioner did not sign on the blank
space provided for the signature of the person receiving the jewelry but at the upper portion thereof immediately below
the description of the items taken. 12
The contention is far from meritorious.
petitioner became bound by all the terms stipulated in the receipt. She, thus, opened herself to all the legal obligations
that may arise from their breach. This is clear from Article 1356 of the New Civil Code which provides:
Contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites
for their validity are present. . . .
However, there are some provisions of the law which require certain formalities for particular contracts. The first is
when the form is required for the validity of the contract; the second is when it is required to make the contract
effective as against third parties such as those mentioned in Articles 1357 and 1358; and the third is when the form is
required for the purpose of proving the existence of the contract, such as those provided in the Statute of Frauds in
article 1403. 13 A contract of agency to sell on commission basis does not belong to any of these three categories,
hence it is valid and enforceable in whatever form it may be entered into.

The receipt marked as Exhibit "A" which establishes a contract of agency to sell on commission basis between Vicky
Suarez and Rosa Lim is herein reproduced in order to come to a proper perspective:
THIS IS TO CERTIFY, that I received from Vicky Suarez PINATUTUNAYAN KO na aking tinanggap kay ___________
the following jewelries:
ang mga alahas na sumusunod:
Furthermore, there is only one type of legal instrument where the law strictly prescribes the location of the signature
of the parties thereto. This is in the case of notarial wills found in Article 805 of the Civil Code, to wit:
Every will, other than a holographic will, must be subscribed at the end thereof by the testator himself . . . .
The testator or the person requested by him to write his name and the instrumental witnesses of the will, shall also
sign, as aforesaid, each and every page thereof, except the last, on the left margin. . . .

Description Price
Mga Uri Halaga In the case before us, the parties did not execute a notarial will but a simple contract of agency to sell on commission
basis, thus making the position of petitioner's signature thereto immaterial.
l ring 3.35 dolo P 169,000.00
1 bracelet 9;170,000.00 Petitioner insists, however, that the diamond ring had been returned to Vicky Suarez through Aurelia Nadera, thus
total P 339,000.00 relieving her of any liability. Rosa Lim testified to this effect on direct examination by her counsel:
Kabuuan Q: And when she left the jewelries with you, what did you do thereafter?
A: On October 12, I was bound for Cebu. So I called up Vicky through telephone and informed her that I am no
in good condition, to be sold in CASH ONLY within . . . days from date of signing this receipt na nasa mabuting
longer interested in the bracelet and ring and that I will just return it.
kalagayan upang ipagbili ng KALIWAAN (ALCONTADO) lamang sa loob ng . . . araw mula ng ating pagkalagdaan:
Q: And what was the reply of Vicky Suarez?
if I could not sell, I shall return all the jewelry within the period mentioned above; if I would be able to sell, I shall
A: She told me that she could not come to the apartelle since she was very busy. So, she asked me if Aurelia
immediately deliver and account the whole proceeds of sale thereof to the owner of the jewelries at his/her
was there and when I informed her that Aurelia was there, she instructed me to give the pieces of jewelry to Aurelia
residence; my compensation or commission shall be the over-price on the value of each jewelry quoted above. I
who in turn will give it back to Vicky.
am prohibited to sell any jewelry on credit or by installment; deposit, give for safekeeping: lend, pledge or give as
Q: And you gave the two (2) pieces of jewelry to Aurelia Nadera?
security or guaranty under any circumstance or manner, any jewelry to other person or persons.
A: Yes, Your Honor. 14
kung hindi ko maipagbili ay isasauli ko ang lahat ng alahas sa loob ng taning na panahong nakatala sa itaas; kung
maipagbili ko naman ay dagli kong isusulit at ibibigay ang buong pinagbilhan sa may-ari ng mga alahas sa kanyang
bahay tahanan; ang aking gantimpala ay ang mapapahigit na halaga sa nakatakdang halaga sa itaas ng bawat This was supported by Aurelia Nadera in her direct examination by petitioner's counsel:
alahas HINDI ko ipinahihintulutang ipa-u-u-tang o ibibigay na hulugan ang alin mang alahas, ilalagak, Q: Do you know if Rosa Lim in fact returned the jewelries?
ipagkakatiwala; ipahihiram; isasangla o ipananagot kahit sa anong paraan ang alin mang alahas sa ibang mga tao A: She gave the jewelries to me.
o tao. Q: Why did Rosa Lim give the jewelries to you?
I sign my name this . . . day of . . . 19 . . . at Manila, NILALAGDAAN ko ang kasunduang ito ngayong ika _____ ng A: Rosa Lim called up Vicky Suarez the following morning and told Vicky Suarez that she was going home to
dito sa Maynila. Cebu and asked if she could give the jewelries to me.
___________________
Q: And when did Rosa Lim give to you the jewelries?
Signature of Persons who A: Before she left for Cebu. 15
received jewelries (Lagda
ng Tumanggap ng mga
Alahas) On rebuttal, these testimonies were belied by Vicky Suarez herself:
Address: . . . . . . . . . . . .
Q: It has been testified to here also by both Aurelia Nadera and Rosa Lim that you gave authorization to Rosa
Lim to turn over the two (2) pieces of jewelries mentioned in Exhibit "A" to Aurelia Nadera, what can you say about
that?
Rosa Lim's signature indeed appears on the upper portion of the receipt immediately below the description of the items A: That is not true sir, because at that time Aurelia Nadera is highly indebted to me in the amount of P140,000.00,
taken: We find that this fact does not have the effect of altering the terms of the transaction from a contract of agency so if I gave it to Nadera, I will be exposing myself to a high risk. 16<
to sell on commission basis to a contract of sale. Neither does it indicate absence or vitiation of consent thereto on the
part of Rosa Lim which would make the contract void or voidable. The moment she affixed her signature thereon,

127
The issue as to the return of the ring boils down to one of credibility. Weight of evidence is not determined
mathematically by the numerical superiority of the witnesses testifying to a given fact. It depends upon its practical
effect in inducing belief on the part of the judge trying the case. 17 In the case at bench, both the trial court and the
Court of Appeals gave weight to the testimony of Vicky Suarez that she did not authorize Rosa Lim to return the pieces
of jewelry to Nadera. The respondent court, in affirming the trial court, said:
. . . This claim (that the ring had been returned to Suarez thru Nadera) is disconcerting. It contravenes the very
terms of Exhibit A. The instruction by the complaining witness to appellant to deliver the ring to Aurelia Nadera is
vehemently denied by the complaining witness, who declared that she did not authorize and/or instruct appellant to
do so. And thus, by delivering the ring to Aurelia without the express authority and consent of the complaining
witness, appellant assumed the right to dispose of the jewelry as if it were hers, thereby committing conversion, a
clear breach of trust, punishable under Article 315, par. 1(b), Revised Penal Code.
We shall not disturb this finding of the respondent court. It is well settled that we should not interfere with the judgment
of the trial court in determining the credibility of witnesses, unless there appears in the record some fact or
circumstance of weight and influence which has been overlooked or the significance of which has been misinterpreted.
The reason is that the trial court is in a better position to determine questions involving credibility having heard the
witnesses and having observed their deportment and manner of testifying during the trial. 18
Article 315, par. 1(b) of the Revised Penal Code provides:
Art. 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned hereinbelow shall
be punished by:
(b) By misappropriating or converting, to the prejudice of another, money, goods, or any other personal property
received by the offender in trust or on commission, or for administration, or under any other obligation involving
the duty to make delivery of or to return the same, even though such obligation be totally or partially guaranteed
by a bond; or by denying having received such money, goods, or other property.
The elements of estafa with abuse of confidence under this subdivision are as follows. (1) That money, goods, or other
personal property be received by the offender in trust, or on commission, or for administration, or under any other
obligation involving the duty to make delivery of, or to return, the same; (2) That there be misappropriation or
conversion of such money or property by the offender or denial on his part of such receipt; (3) That such
misappropriation or conversion or denial is to the prejudice of another; and (4) That there is a demand made by the
offended party to the offender (Note: The 4th element is not necessary when there is evidence of misappropriation of
the goods by the defendant) 19
All the elements of estafa under Article 315, Paragraph 1(b) of the Revised Penal Code, are present in the case at
bench. First, the receipt marked as Exhibit "A" proves that petitioner Rosa Lim received the pieces of jewelry in trust
from Vicky Suarez to be sold on commission basis. Second, petitioner misappropriated or converted the jewelry to her
own use; and, third, such misappropriation obviously caused damage and prejudice to the private respondent.
WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals is hereby AFFIRMED.
128
[ G.R. No. 185530. April 18, 2018 ]
MAKATI TUSCANY CONDOMINIUM CORPORATION, PETITIONER, VS. MULTI-REALTY DEVELOPMENT
CORPORATION, RESPONDENT.
Reformation of an instrument may be allowed if subsequent and contemporaneous acts of the parties show that their
true intention was not accurately reflected in the written instrument.
This resolves the Petition for Review on Certiorari[1] filed by Makati Tuscany Condominium Corporation (Makati
Tuscany), assailing the April 28, 2008 Amended Decision[2] and December 4, 2008 Resolution[3] of the Court of
Appeals in CA-G.R. CV No. 44696.
In 1974, Multi-Realty Development Corporation (Multi-Realty) built Makati Tuscany, a 26-storey condominium building
located at the corner of Ayala Avenue and Fonda Street, Makati City.[4]
Makati Tuscany had a total of 160 units, with 156 ordinary units from the 2nd to the 25th floors and four (4) penthouse
units on the 26th floor.[5] It also had 270 parking slots which were apportioned as follows: one (1) parking slot for
each ordinary unit; two (2) parking slots for each penthouse unit; and the balance of 106 parking slots were allocated
as common areas.[6]
On July 30, 1975, Multi-Realty, through its president Henry Sy, Sr., executed and signed Makati Tuscany's Master Deed
and Declaration of Restrictions (Master Deed),[7] which was registered with the Register of Deeds of Makati in 1977.[8]
Sometime in 1977, pursuant to Republic Act No. 4726, or the Condominium Act, Multi-Realty created and incorporated
Makati Tuscany Condominium Corporation (MATUSCO) to hold title over and manage Makati Tuscany's common areas.
That same year, Multi-Realty executed a Deed of Transfer of ownership of Makati Tuscany's common areas to
MATUSCO.[9]
On April 26, 1990, Multi-Realty filed a complaint for damages and/or reformation of instrument with prayer for
temporary restraining order and/or preliminary injunction against MATUSCO. This complaint was docketed as Civil Case
No. 90-1110 and raffled to Branch 59 of Makati Regional Trial Court.[10]
Multi-Realty alleged in its complaint that of the 106 parking slots designated in the Master Deed as part of the common
areas, only eight (8) slots were actually intended to be guest parking slots; thus, it retained ownership of the remaining
98 parking slots.[11]
Multi-Realty claimed that its ownership over the 98 parking slots was mistakenly not reflected in the Master Deed "since
the documentation and the terms and conditions therein were all of first impression,"[12] considering that Makati
Tuscany was one of the first condominium developments in the Philippines.[13]
On October 29, 1993, the Regional Trial Court[14] dismissed Multi-Realty's complaint. It noted that Multi-Realty itself
prepared the Master Deed and Deed of Transfer; therefore, it was unlikely that it had mistakenly included the 98
parking slots among the common areas transferred to MATUSCO. It also emphasized that Multi-Realty's prayer for the
reformation of the Master Deed could not be granted absent proof that MATUSCO acted fraudulently or inequitably
towards Multi-Realty. Finally, it ruled that Multi-Realty was guilty of estoppel by deed.[15] The fallo of its Decision
read:
 Premises considered, this case is dismissed. [MATUSCO's] counterclaim is likewise dismissed the same not being
compulsory and no filing fee having been paid. [Multi-Realty] is however ordered to pay [MATUSCO's] attorney's fees
in the amount of P50,000.00
Both parties appealed the Regional Trial Court Decision to the Court of Appeals. On August 21, 2000, the Court of
Appeals[17] dismissed both appeals on the ground of prescription.
In dismissing Multi-Realty's appeal, the Court of Appeals held that an action for reformation of an instrument must be
brought within 10 years from the execution of the contract. As to the dismissal of MATUSCO's appeal, the Court of
Appeals ruled that its claim was based on a personal right to collect a sum of money, which had a prescriptive period
of four (4) years, and not based on a real right, with a prescriptive period of 30 years.[18]
The fallo of the Court of Appeals August 21, 2000 Decision read:
WHEREFORE, foregoing premises considered, no merit in fact and in law is hereby ORDERED DISMISSED, and the
judgment of the trial court is MODIFIED by deleting the award of attorney's fees not having been justified but
AFFIRMED as to its Order dismissing both the main complaint of [Multi-Realty] and the counterclaim of [MATUSCO].
With costs against both parties.
Multi-Realty moved for reconsideration,[20] but its motion was denied in the Court of Appeals January 18, 2001
Resolution.[21] It then filed a petition for review[22] before this Court.
On June 16, 2006, this Court in Multi-Realty Development Corporation v. The Makati Tuscany Condominium
Corporation[23] granted Multi-Realty's petition, set aside the assailed Court of Appea]s August 21, 2000 Decision, and
directed the Court of Appeals to resolve Multi-Realty's appeal.
Multi-Realty Development Corporation ruled that the Court of Appeals should have resolved the appeal on the merits
instead of motu proprio resolving the issue of whether or not the action had already prescribed, as the issue of
prescription was never raised by the parties before the lower courts.[24]
Nonetheless, Multi-Realty Development Corporation held that even if prescription was raised as an issue, the Court of
Appeals still erred in dismissing the case because Multi-Realty's right to file an action only accrued in 1989 when
MATUSCO denied Multi-Realty's ownership of the 98 parking slots. The Court of Appeals ruled that it was only then
that Multi-Realty became aware of the error in the Master Deed, thereafter seeking its reformation to reflect the true
agreement of the parties. Thus, prescription had not yet set in when Multi-Realty filed its complaint for reformation of
instrument in 1990.[25]
The fallo in Multi-Realty Development Corporation read:
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No.
44696 is SET ASIDE. The Court of Appeals is directed to resolve [Multi--Realty's] appeal with reasonable dispatch.
No costs.
On November 5, 2007, the Court of Appeals[27] denied both appeals.
Regarding Multi-Realty's appeal, the Court of Appeals held that the Master Deed could only be read to mean that the
98 parking slots being claimed by Multi-Realty belonged to MATUSCO. It highlighted that the language of the Master
Deed, as prepared by Multi-Realty, was clear and not susceptible to any other interpretation.[28]
129
The Court of Appeals upheld the Regional Trial Court's finding that Multi-Realty was guilty of estoppel by deed and
likewise declared that MATUSCO was not estopped from questioning Multi-Realty's claimed ownership over and sales
of the disputed parking slots.[29]
The fallo of the Court of Appeals November 5, 2007 Decision read:
WHEREFORE, the instant appeals are hereby DENIED. The assailed Decision dated October 29, 1993 of the Regional
Trial Court (Branch 65), Makati, Metro Manila (now Makati City), in Civil Case No. 90-1110 is MODIFIED-in that: (1)
the counterclaim of The Makati Tuscany Condominium Corporation is DISMISSED-not on the ground of non-payment
of docket fees but on ground of prescription; and, (2) the award of attorney's fees in favor of The Makati Tuscany
Condominium Corporation is DELETED for not having been justified. We however AFFIRM in all other aspects. Costs
against both parties.
Multi-Realty moved for the reconsideration of the Court of Appeals November 5, 2007 Decision and on April 28, 2008,
the Court of Appeals promulgated an Amended Decision,[31] reversing its November 5, 2007 Decision and directing
the reformation of the Master Deed and Deed of Transfer.
In reversing its November 5, 2007 Decision, the Court of Appeals ruled that the Master Deed and Deed of Transfer did
not reflect the true intention of the parties on the ownership of the 98 parking slots.[32]
The Court of Appeals stated that in reformation cases, the party asking for reformation had the burden to overturn the
presumption of validity accorded to a written contract. It held that Multi-Realty was able to discharge this burden.[33]
The fallo of the Court of Appeals April 28, 2008 Amended Decision read:
WHEREFORE, premises considered, the present Motion for Reconsideration is PARTLY GRANTED. Our Decision dated
November 05, 2007 is hereby MODIFIED-in that We ORDER the reformation of the Master Deed and Declaration of
Restrictions of the Makati Tuscany Condominium Project and the Deed of Transfer-to clearly provide that the
ownership over the ninety[-]eight (98) extra parking lots be retained by Multi-Realty Development Corporation. We
however DENY the damages and attorney's fees prayed for by Multi-Realty Development Corporation. We AFFIRM in
all other respects. No costs.
MATUSCO moved for the reconsideration[35] of the Amended Decision, but its motion was denied in the Court of
Appeals December 4, 2008 Resolution.[36]
On February 5, 2009, MATUSCO filed its Petition for Review[37] on Certiorari before this Court.
In its Petition, petitioner claims that the Court of Appeals erred in granting Multi-Realty's appeal because there was no
basis to reform the Master Deed and Deed of Transfer. It asserts that there was no mistake, fraud, inequitable conduct,
or accident which led to the execution of an instrument that did not express the true intentions of the parties. It avers
that the instruments clearly expressed what the parties agreed upon.[38]
Petitioner also assails the Court of Appeals' ruling that it was estopped from questioning respondent's sales of26 out
of the 98 contested parking slots and from claiming ownership of the remaining unsold parking slots because it was
supposedly fully aware of respondent's ownership of them and did not oppose its sales for 9 years.[39]
Petitioner maintains that estoppel cannot apply because the sales made by respondent were patently illegal as they
went against the stipulations in the Master Deed. Furthemore, petitioner contends that it never misled respondent
regarding ownership of the 98 parking slots since it was respondent itself which drafted the Master Deed and Deed of
Transfer that turned over ownership of the common areas, including the 98 parking slots, to MATUSCO.[40]
In its Comment,[41] respondent insists that it never intended to include the 98 parking slots among the common areas
transferred to MATUSCO. It avers that due to its then inexperience with the condominium business, with Makati Tuscany
being one of the Philippines' first condominium projects, the Master Deed and Deed of Transfer failed to reflect the
original intention to exclude the 98 parking slots from Makati Tuscany's common areas.[42]
Respondent points to the parties' subsequent acts that led to the only conclusion that it was always the intention to
exclude the 98 parking slots from the common areas, and that this was known and accepted by petitioner from the
beginning.[43]
Respondent maintains that the Petition raises factual findings and prays that this Court take a second look at the
evidence presented and come up with its own factual findings, in derogation of the purpose of an appeal under Rule
45 of the Rules of Court, which generally limits itself to questions of law.[44]
Respondent also points out that in Multi-Realty Development Corporation, this Court, in its recital of material facts,
acknowledged that it retained ownership over the 98 parking slots, but that its ownership over them was not reflected
in the Master Deed and Deed of Transfer. Thus, respondent asserts that the issue of ownership can no longer be
threshed out on appeal on the ground of res judicata.[45]
In its Reply,[46] petitioner claims that just like respondent, it also committed a mistake in good faith and "also labored
under a mistaken appreciation of the nature and ownership of the ninety[-]eight (98) parking slots"[47] when it failed
to object to respondent's sales of some of the parking slots from 1977 to 1986 and when it issued Certificates of
Management over the sold parking slots. It was only later that petitioner realized the extent of its legal right over the
98 parking slots; consequently, it exerted effort to exercise its dominion over them. Petitioner argues that this cannot
be characterized as bad faith on its part.[48]
Petitioner adds that the Master Deed and Deed of Transfer are public documents, being duly registered with the Register
of Deeds of Makati City, ergo, their terms, conditions, and restrictions are valid and binding in rem. It opines that for
the Court of Appeals to change the clear and categorical wordings of the Master Deed more than 30 years after its
registration goes against public policy and the Condominium Act.[49]
Petitioner insists that if respondent merely made a mistake in including the 98 parking slots among the common areas
transferred to petitioner, this mistake must be construed in petitioner's favor as respondent is owned by one of the
wealthiest family corporations in the country while petitioner is merely an association of innocent purchasers for
value.[50]
The issues raised for this Court's resolution are as follows:
First, whether or not there is a need to reform the Master Deed and the Deed of Transfer; and
Second, whether or not this Court is bound by the factual findings in Multi-Realty Development Corporation v. The
Makati Tuscany Condominium Corporation on the ground of conclusiveness of judgment.
I To substantiate its claim that there was a difference between the written terms in the Master Deed and Deed of Transfer
Reformation of an instrument is a remedy in equity where a valid existing contract is allowed by law to be revised to
express the true intentions of the contracting parties.[51] The rationale is that it would be unjust to enforce a written
instrument which does not truly reflect the real agreement of the parties.[52] In reforming an instrument, no new
contract is created for the parties, rather, the reformed instrument establishes the real agreement between the parties
as intended, but for some reason, was not embodied in the original instrument.[53]
130
An action for reformation of an instrument finds its basis in Article 1359 of the Civil Code which provides:
Article 1359. When, there having been a meeting of the minds of the parties to a contract, their true intention is not
expressed in the instrument purporting to embody the agreement, by reason of mistake, fraud, inequitable conduct
or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may
be expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the proper
remedy is not reformation of the instrument but annulment of the contract.
The National Irrigation Administration v. Gamit[54] stated that there must be a concurrence of the following requisites
for an action for reformation of instrument to prosper:
(1) there must have been a meeting of the minds of the parties to the contract; (2) the instrument does not express
the true intention of the parties; and (3) the failure of the instrument to express the true intention of the parties is
due to mistake, fraud, inequitable conduct or accident.[55]
The burden of proof then rests upon the party asking for the reformation of the instrument to overturn the presumption
that a written instrument already sets out the true intentions of the contracting parties.[56]
It is not disputed that the parties entered into a contract regarding the management of Makati Tuscany's common
areas. A Master Deed and a Deed of Transfer were executed to contain all the terms and conditions on the individual
ownership of Makati Tuscany's units and the co-ownership over the common areas. The question to be resolved is
whether the provisions in the Master Deed and Deed of Transfer over the 98 parking slots, as part of the common
areas, expressed the true intentions of the parties, and if not, whether it was due to mistake, fraud, inequitable conduct,
or accident.
Sections 5 and 7(d) of the Master Deed provide as follows:
SEC. 5. Accessories to Units. - To be considered as part of each unit and reserved for the exclusive use of its owner
are the balconies adjacent thereto and the parking lot or lots which are to be assigned to each unit.
SEC. 7. The Common Areas. - The common elements or areas of The Makati Tuscany shall comprise all the parts of
the project other than the units, including without limitation the following:
(d) All driveways, playgrounds, garden areas and parking areas other than those assigned to each unit under Sec.
5 above[.][57]
A plain and literal reading of Section 7(d) in relation to Section 5 shows that all parking areas which are not assigned
to units come under petitioner's authority because they are part of the common areas.
Respondent argues that what was written in the Master Deed and Deed of Transfer failed to fully capture what was
actually intended by the parties. However, intentions involve a state of mind, making them difficult to decipher;
therefore, the subsequent and contemporaneous acts of the parties must be presented into evidence to reflect the
parties' intentions.[58]
and the parties' intentions, respondent refers to their prior and subsequent acts.
First, respondent points out that in the color-coded floor plans for the ground floor, upper basement, and lower
basement, only eight (8) guest parking slots were indicated as part of the common areas. However, respondent alleges
that due to its inexperience with documenting condominium developments, it failed to reflect the correct number of
guest parking slots in the Master Deed and Deed of Transfer.[59]
Second, acting under the honest belief that it continued to own the 98 parking slots, respondent sold 26 of them to
Makati Tuscany's unit owners from 1977 to 1986, without any hint of a complaint or opposition from petitioner.
Respondent also states that petitioner repeatedly cooperated and supported its sales by issuing Certificates of
Management for the condominium units and parking slots sold by respondent.[60]
Third, petitioner's Board of Directors made repeated offers to purchase the parking slots from respondent, signifying
petitioner's recognition of respondent's retained ownership over the disputed parking slots. This was made evident in
an excerpt from the minutes of the June 14, 1979 meeting of MATUSCO's Board of Directors:
UNASSIGNED PARKING SLOTS
Mr. Jovencio Cinco informed the Board of the final proposal of Multi-Realty Development Corp. to sell the condominium
corp. all of the unassigned parking lots at a discounted price of P15,000.00 per lot, or some 50% lower than their
regular present price of P33,000.00 each.
After discussion, it was agreed to hold in abeyance any decision on the matter for all the members of the Board in
attendance to pass upon.[61]
Finally, respondent highlights that it was only in September 1989, when the value of the 72 remaining unallocated
parking slots had risen to approximately P250,000.00 each or approximately P18,000,000.00 for the 72 parking slots,
that petitioner first claimed ownership of the remaining parking slots.[62]
At this juncture, it must be pointed out that petitioner never rebutted any of respondent's statements regarding the
subsequent acts of the parties after the execution and registration of the Master Deed and Deed of Transfer. Petitioner
even adopted the narration of facts in Multi-Realty Development Corporation and declared in its Reply that:
1. The Petition does not raise questions of fact because no doubt or difference exists between the parties' appreciation
of the truth or falsehood of alleged facts, nor does it require the Honorable Court to evaluate the credibility of
witnesses or their testimonies. The resolution of the instant controversy rests solely upon the correct application of
principles of law and pertinent jurisprudence, as well as hallowed ideals of fairness and public policy which are specific
or germane to the undisputed facts. These facts have already been framed by this Honorable Court in a related case
brought before it by the same parties, albeit limited to the sole issue of prescription of the action for reformation of
instruments initiated by [Multi--Realty]. For the avoidance of doubt, these facts are reproduced hereunder as follows:
1.3 Makati Tuscany consisted of 160 condominium units, with 156 units from the 2nd to the 25th floors, and 4
penthouse units in the 26th floor. Two hundred seventy (270) parking slots were built therein for appointment
among its unit owners. One hundred sixty-four (164) of the parking slots were so allotted, with each unit at the
2nd to the 25th floors being allotted one ( 1) parking slot each, and each penthouse unit with two slots. Eight (8)
other parking slots, found on the ground floor of the Makati Tuscany were designated as guest parking slots, while
the remaining ninety[-]eight (98) were to be retained by Multi-Realty for sale to unit owners who would want to
have additional slots.
1.7. The Master Deed was filed with the Register of Deeds in 1977. Multi-Realty executed a Deed of Transfer in
favor of Makati Tuscany over these common areas. However, the Master Deed and the Deed of Transfer did not
reflect or specify the ownership of the 98 parking slots. Nevertheless, Multi-Realty sold 26 of them in 19 to 1986
to condominium unit buyers who needed additional parking slots. Makati Tuscany did not object, and certificates of
title were later issued by the Register of Deeds in favor of the buyers. Makati Tuscany issued Certificates of
Management covering the condominium units and parking slots which Multi-Realty has sold.
1.8 At a meeting of Makati Tuscany's Board of Directors on 13 March 1979, a resolution was approved, authorizing
its President, Jovencio Cinco, to negotiate terms under which Makati Tuscany would buy 36 of the unallocated
parking slots from Multi-Realty. During another meeting of the Board of Directors on 14 June 1979, Cinco informed
131
the Board members of Multi-Realty's proposal to sell all of the unassigned parking lots at a discounted price of
P15,000.00 per lot, or some 50% lower than the then prevailing price of P33,000.00 each. The Board agreed to
hold in abeyance any decision on the matter to enable all its members to ponder upon the matter.[63] (Emphasis
supplied, citations omitted)
Just like respondent, petitioner invokes mistake in good faith to explain its seeming recognition of respondent's
ownership of the 72 remaining parking slots, showing its acquiescence to respondent's sale of the 26 parking slots and
its issuance of the Certificates of Management for the sold condominium units and parking slots.[64]
Petitioner fails to convince.
The totality of the undisputed evidence proving the parties' acts is consistent with the conclusion that the parties never
meant to include the 98 parking slots among the common areas to be transferred to petitioner. The evidence is
consistent to support the view that petitioner was aware of this fact.
From 1977 to 1986, respondent sold 26 of the 98 parking lots now under contention without protest from petitioner.
Petitioner recognized respondent's ownership of the disputed parking lots on at least two (2) occasions when its Board
of Directors made known its intention to purchase them from respondent.
In its Manifestation Ad Cautelam,[65] petitioner asked to be allowed to file a reply to respondent's comment to rectify
the "erroneous statements of fact and conclusions of law"[66] contained in it. However, petitioner in its Reply[67] did
not contradict any of the subsequent acts of the parties narrated by respondent, showing petitioner's repeated
acquiescence to respondent's acts of dominion over the parking slots. Petitioner even adopted this Court's narration of
facts in Multi-Realty Development Corporation where this Court stated that "[e]ight (8) other parking slots, found on
the ground floor of the Makati Tuscany were designated as guest parking slots, while the remaining 98 were to be
retained by Multi-Realty for sale to unit owners who would want to have additional slots."[68]
Petitioner claims that it was confusion and not bad faith that caused its belated assertion of ownership over the parking
slots.[69] However, the facts show that it was the intention of the parties all along for Multi-Realty to retain ownership
of the 98 parking slots and then sell them to unit owners who wanted additional parking slots.
Petitioner argues its lack of bad faith in claiming ownership over the 98 parking slots. Whether or not it acted in bad
faith was never in issue. Instead, the issue to be resolved was whether or not respondent committed a mistake in
drafting and executing the Master Deed and Deed of Transfer, thereby leading to the inadvertent inclusion of the 98
parking slots among the common areas transferred to petitioner.
Further, it is difficult to impute confusion and bad faith, which are states of mind appropriate for a natural individual
person, to an entire corporation. The fiction where corporations are granted both legal personality separate from its
owners and a capacity to act should not be read as endowing corporations with a single mind. In truth, a corporation
is a hierarchical community of groups of persons both in the governing board and in management. Corporations have
different minds working together including its lawyers, auditors, and, in some cases, their compliance officers.
To grant the argument that a corporation, like a natural person, was confused or not in bad faith is to extend to it too
much analogy and to endow it more of the human characteristics beyond its legal fiction. This Court is not endowed
with such god-like qualities of a creator or should allow illicit extensions of legal fiction to cause injustice.
Respondent, through a preponderance of evidence, was able to prove its claim that the Master Deed and Deed of Respondent is mistaken.
Transfer failed to capture the true intentions of the parties; hence, it is but right that the instruments be reformed to
accurately reflect the agreement of the parties. There is res judicata when the following concur:
a) the former judgment must be final;
Petitioner asserts that respondent's admission of committing a mistake in drafting the Master Deed and Deed of Transfer b) the court which rendered judgment had jurisdiction over the parties and the subject matter;
makes it liable to suffer the consequences of its mistake and should be bound by the plain meaning and import of the c) it must be a judgment on the merits;
instruments. It contends that respondent should be estopped from claiming that the Master Deed and Deed of Transfer d) and there must be between the first and second actions identity of parties, subject matter, and cause of action.[75]
failed to show the parties' true intentions. (Emphasis in the original, citation omitted)

Again, petitioner fails to convince.
In Philippine National Bank v. Court of Appeals,[70] this Court held:
"The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice, and its
purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one to whom
they were directed and who reasonably relied thereon. The doctrine of estoppel springs from equitable principles and
the equities in the case. It is designed to aid the law in the administration of justice where without its aid injustice
might result." It has been applied by this Court wherever and whenever special circumstances of a case so
demand.[71]
In this case, except for the words in the contract, all of respondent's acts were consistent with its position in the case.
Multi-Realty Development Corporation did not take on the merits of the case but only tackled the issue of prescription
n.ised to this Court on appeal. After finding that the action had not yet prescribed and was mistakenly dismissed by
the Court of Appeals because of a supposedly stale claim, this Court directed that it be remanded to the Court of
Appeals for a resolution of the appeal:
Nevertheless, given the factual backdrop of the case, it was inappropriate for the CA, motu proprio, to delve into and
resolve the issue of whether [Multi-Realty's] action had already prescribed. The appellate court should have
proceeded to resolve [Multi-Realty's] appeal on its merits instead of dismissing the same on a ground not raised by
the parties in the RTC and even in their pleadings in the CA.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No.
44696 is SET ASIDE. The Court of Appeals is directed to resolve petitioner's appeal with reasonable dispatch. No
costs.

Petitioner does not deny that it stayed silent when respondent sold the parking slots on several occasions or that it
offered to buy the parking slots from respondent on at least two (2) occasions. It excuses itself by saying that just like
respondent, it "also labored under a mistaken appreciation of the nature and ownership of the ninety[-]eight (98)
parking slots in question."[72]
Clearly, res judicata had not yet set in and this Court was not precluded from evaluating all of the evidence vis-a-vis
the issues raised by both parties.
WHEREFORE, premises considered, the Petition for Review on Certiorari is DENIED. The Court of Appeals April 28, 2008
Amended Decision and December 4, 2008 Resolution in CA-G.R. CV No. 44696 are AFFIRMED.

Both parties recognized respondent's ownership of the parking slots. Petitioner initially respected respondent's
ownership despite the Master Deed's and Deed of Transfer's stipulations. It was petitioner that changed its position
decades after it acted as if it accepted respondent's ownership.

Petitioner cannot claim the benefits of estoppel. It was never made to rely on any false representations. It knew from
its inception as a corporation that ownership of the parking slots remained with respondent. Its dealings with
respondent and the actuations of its Board of Directors convincingly show that it was aware of and respected
respondent's ownership. The Court of Appeals ruled as follows:
Not even the registration of the Master Deed with the Makati City Register of Deeds renders Multi-Realty guilty of
estoppel by deed. For one, [MATUSCO] was not made to believe that it shall be the owner of the questioned extra
parking lots. And for another, [MATUSCO] was not made to rely on any false representation. As we have earlier
discussed-evidence is replete that both parties knew at the outset that ownership over the said extra parking lots
were to be retained by Multi-Realty. It is sad to note, however, that such fact was not clearly reflected in the Master
Deed and the Deed of Transfer. Besides, it was only after the issue of ownership cropped up that Multi-Realty realized
that, indeed, there was a mistake in the drafting of the Master Deed.[73]

II

Despite petitioner's adoption of this Court's recital of facts in Multi--Realty Development Corporation, this Court deems
it proper to address respondent's claim that this Court upheld its ownership of the disputed parking slots, as Multi-
Realty Development Corporation supposedly contained final factual findings on this very issue, which ought to be
respected on the ground of res judicata.[74]

132
G.R. No. 107606 June 20, 1996
MERCEDES N. ABELLA, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and CONRADO COLARINA, respondents.
On May 26, 1987, petitioner Mercedes N. Abella, as lessor, and private respondent Conrado Colarina, as lessee, signed
a contract of lease1 of a portion of Juanabel Building situated at Elias Angeles Street, Naga City. The duration of the
contract is from "July 1, 1987 until July 1, 1991"2 or for a term of four (4) years3 with a stipulated monthly rental of
Three Thousand Pesos (P3,000.00).4 Upon the signing of the contract, Colarina paid an amount of Forty Thousand
Pesos (P40,000.00) to Abella which the latter acknowledged by issuing the corresponding receipt.5 Intending to use
the premises for his pawnshop business, Colarina introduced thereon certain improvements6 for which he spent Sixty
Eight Thousand Pesos (P68,000.00). Colarina paid the monthly rental on a regular basis but discontinued payment
from November 1987 to April 1988.7 Thereafter, Abella then made repeated demands to pay with notice of extrajudicial
rescission pursuant to paragraph thirteen (13)8 of the lease contract which were all unheeded. Thus, Abella took
possession of the premises on May 1, 1988, with the assistance of the Naga City PNP and some Barangay officials 9 who
made an inventory 10 of all the items found therein.
On May 5, 1988, Colarina filed an action for "enforcement of contract of lease with preliminary mandatory injunction
and damages" 11 against Abella before the Regional Trial Court (RTC) of Naga. After trial, the lower court among others
ordered: (1) Abella to return the amount of Forty Thousand Pesos (P40,000.00) less Eighteen Thousand Pesos
(P18,000.00) representing unpaid rental from November-December, 1987, to April, 1988 or for a period of six (6)
months, or the sum of TWENTY TWO THOUSAND Pesos (P22,000.00) to Colarina together with the destroyed and
removed materials and improvements introduced by him in the premises leased; and (2) the dismissal of the case for
lack of merit. 12
On appeal, the respondent Court of Appeals reversed the decision of the trial court and ordered petitioner Abella: (1)
to restore to Colarina the possession of the leased premises under the same terms and conditions stated in the contract
of lease; (2) to restore in the premises the improvements introduced by Colarina which were demolished or removed
by Abella or to pay the value thereof in the sum of P68,000.00, with interest until fully paid; and (3) to pay the costs
of the Suit. 13 Aggrieved, Abella filed this petition for review on certiorari faulting the respondent Court of Appeals with
five assigned errors which basically dwell on the following issues, to wit: (1) whether or not respondent Colarina violated
the contract of lease warranting its extrajudicial rescission; and (2) whether or not possession of the premises may
properly be restored to Colarina.
Anent the first issue. It is not disputed that petitioner received the sum of forty thousand pesos (P40,000.00) from
Colarina. 14 Petitioner and Colarina, however, are at loggerheads with respect to the purpose of such payment. The
trial court agreed with the petitioner that the amount represents only a "goodwill money" given to the latter by Colarina
in payment for the privilege to occupy the vacant portion of Juanabel Building. 15 On the other hand, the respondent
Court of Appeals sided with Colarina and held that the same is an "advance deposit to answer for any rental which
Colarina may fail to pay." 16 We uphold the findings of the respondent Court of Appeals.
Our careful review of the record reveals that Colarina did not violate the subject contract of lease with respect to his
rental obligation in view of his payment of forty thousand pesos. Reproduced hereunder are the contents of the receipt
acknowledging the acceptance by the petitioner of the said amount of forty thousand pesos:
RECEIVED FROM MR. CONRADO O. COLARINA THE SUM OF FORTY THOUSAND PESOS (P40,000.00) AS ADVANCE
DEPOSIT, TO ANSWER FOR ANY RENTAL WHICH MR. CONRADO COLARINA MAY FAIL TO PAY DURING THE TERM OF
THE LEASE AS PER CONTRACT, DATED 26TH DAY OF MAY, 1987 NOTARIZED BEFORE NOTARY PUBLIC OSCAR
133
VILLAMORA, DOC. NO. 398; PAGE NO. 80; BOOK NO. 9, SERIES OF 1987, THIS 26TH DAY OF MAY, 1987, AT NAGA
CITY. (Emphasis supplied.)
(Sgd.) MERCEDES N. ABELLA 17
It is a cardinal rule in the interpretation of contracts that "if the terms of a contract are clear and leave no doubt upon
the intention of the contracting parties, the literal meaning of its stipulations shall control". 18 The above-quoted receipt
is clear and unequivocal that the disputed amount is an advance deposit which will answer for any rental that Colarina
may fail to pay. No amount of extrinsic aids are required and no further extraneous sources are necessary
in order to ascertain the parties' intent, determinable as it is, from the receipt itself. 19
We are, thus, more convinced that the receipt expresses truly the parties' intent on the purpose of said payment as
against the oral testimony of the petitioner that said amount is but only a "goodwill money". Without any doubt, oral
testimony as to a certain fact, depending as it does exclusively on human memory, is not as reliable as written or
documentary evidence. 20 "I would sooner trust the smallest slip of paper for truth", said Judge Limpkin of Georgia,
"than the strongest and most retentive memory ever bestowed on mortal man." 21 This is especially true in this case
where such oral testimony is given by the petitioner himself, a party to the case who has an interest in its outcome,
and by Jesus Hipolito, a witness who claimed to have received a commission from the petitioner. 22 In addition, the
trial court itself has found that this receipt is genuine when it brushed aside the petitioner's claim that her signature
appearing thereon was a forgery. 23 The authenticity of the receipt further enhances its probative value as against the
oral testimony of the petitioner and of her witness.
We also find unmeritorious petitioner's contention that the receipt failed to reflect her true intention warranting a
reformation thereof. Petitioner, being of age and a businesswoman, is presumed to have acted with due care and to
have signed the receipt in question with full knowledge of its contents and import. 24 Equally unmeritorious is
petitioner's insistence that Colarina procured her signature "thru fraud and any other deceitful means", 25 an issue
which was never raised below. It is a settled rule that an issue which was not threshed out below may not be raised
for the first time on appeal. Moreover, no iota of evidence was ever adduced at the trial to support her allegation of
fraud. The reformation of said receipt simply lacks basis.
Hence, we rule that respondent Colarina was not yet in arrears with his rental payment when petitioner took possession
of the leased premises on May 1, 1988. Accordingly, petitioner's rescission of the subject contract of lease was
improper.
The second issue, however, has been rendered moot and academic by the timely expiration of the term of the subject
contract of lease on July 1, 1991. 26 Colarina, therefore, has no more right to be restored to the possession of the
leased premises, said right being coterminous with the term of the contract.
WHEREFORE, the decision of the Court of Appeals is MODIFIED. Petitioner Mercedes N. Abella is hereby ordered to:
1. return to private respondent Conrado Colarina the amount of Forty Thousand Pesos (P40,000.00) less Eighteen
Thousand Pesos (P18,000.00) (unpaid rental from November, 1987 to April, 1988 or for a period of six (6) months),
or the sum of TWENTY TWO THOUSAND Pesos (P22,000.00);
2. pay private respondent Colarina the sum of Sixty Eight Thousand Pesos (P68,000.00), representing the value of
the improvements demolished, with legal interest reckoned from May 1, 1988, the date when petitioner took
possession of the premises, until fully paid.
G.R. No. 220978
CENTURY PROPERTIES, INC., Petitioner,
vs
EDWIN J. BABIANO and EMMA B. CONCEPCION, Respondents.
Assailed in this petition for review on certiorari1are the Decision2 dated April 8, 2015 and the Resolution3 dated October
12, 2015 of the Court of Appeals (CA) in CA-G.R. SP No. 132953, which affirmed with modification the Decision4 dated
June 25, 2013 and the Resolution5 dated October 16, 2013 of the National Labor Relations Commission (NLRC) in NLRC
LAC No. 05-001615-12, and ordered petitioner Century Properties, Inc. (CPI) to pay respondents Edwin J. Babiano
(Babiano) and Emma B. Concepcion (Concepcion; collectively, respondents) unpaid commissions in the amounts of
P889,932.42 and P591,953.05, respectively.
The Facts
On October 2, 2002, Babiano was hired by CPI as Director of Sales, and was eventually 6 appointed as Vice President
for Sales effective September 1, 2007. As CPI' s Vice President for Sales, Babiano was remunerated with, inter alia, the
following benefits: (a) monthly salary of P70,000.00; (b) allowance of P50,000.00; and (c) 0.5% override commission
for completed sales. His employment contract 7 also contained a "Confidentiality of Documents and Non:-Compete
Clause"8 which, among others, barred him from disclosing confidential information, and from working in any business
enterprise that is in direct competition with CPI "while [he is] employed and for a period of one year from date of
resignation or termination from [CPI]." Should Babiano breach any of the terms thereof, his "forms of compensation,
including commissions and incentives will be forfeited."9
During the same period, Concepcion was initially hired as Sales Agent by CPI and was eventually 10 promoted as Project
Director on September 1, 2007.11 As such, she signed an employment agreement, denominated as "Contract of Agency
for Project Director"12 which provided, among others, that she would directly report to Babiano, and receive a monthly
subsidy of P60,000.00, 0.5% commission, and cash incentives. 13 On March 31, 2008, Concepcion executed a similar
contract14 anew with CPI in which she would receive a monthly subsidy of P50,000.00, 0.5% commission, and cash
incentives as per company policy. Notably, it was stipulated in both contracts that no employer-employee relationship
exists between Concepcion and CPI.15
After receiving reports that Babiano provided a competitor with information regarding CPI's marketing strategies,
spread false information regarding CPI and its projects, recruited CPI's personnel to join the competitor, and for being
absent without official leave (AWOL) for five (5) days, CPI, through its Executive Vice President for Marketing and
Development, Jose Marco R. Antonio (Antonio), sent Babiano a Notice to Explain 16 on February 23, 2009 directing him
to explain why he should not be charged with disloyalty, conflict of interest, and breach of trust and confidence for his
actuations.17
On February 25, 2009, Babiano tendered18 his resignation and revealed that he had been accepted as Vice President
of First Global BYO Development Corporation (First Global), a competitor of CPI. 19 On March 3, 2009, Babiano was
served a Notice of Termination20 for: (a) incurring AWOL; (b) violating the "Confidentiality of Documents and Non-
Compete Clause" when he joined a competitor enterprise while still working for CPI and provided such competitor
enterprise information regarding CPI' s marketing strategies; and (c) recruiting CPI personnel to join a competitor.21
On the other hand, Concepcion resigned as CPI's Project Director through a letter22 dated February 23, 2009, effective
immediately.
134
On August 8, 2011, respondents filed a complaint23 for non-payment of commissions and damages against CPI and
Antonio before the NLRC, docketed as NLRC Case No. NCR-08-12029-11, claiming that their repeated demands for the
payment and release of their commissions remained unheeded.24
For its part, CPI maintained25 that Babiano is merely its agent tasked with selling its projects. Nonetheless, he was
afforded due process in the termination of his employment which was based on just causes. 26 It also claimed to have
validly withheld Babiano' s commissions, considering that they were deemed forfeited for violating the "Confidentiality
of Documents and Non-Compete Clause."27 On Concepcion's money claims, CPI asserted that the NLRC had no
jurisdiction to hear the same because there was no employer-employee relations between them, and thus, she should
have litigated the same in an ordinary civil action.28
The LA Ruling
In a Decision29 dated March 19, 2012, the Labor Arbiter (LA) ruled in CPI's favor and, accordingly, dismissed the
complaint for lack of merit.30 The LA found that: (a) Babiano's acts of providing information on CPI’s marketing
strategies to the competitor and spreading false information about CPI and its projects are blatant violations of the
"Confidentiality of Documents and Non-Compete Clause" of his employment contract, thus, resulting in the forfeiture
of his unpaid commissions in accordance with the same clause;31 and (b) it had no jurisdiction over Concepcion's money
claim as she was not an employee but a mere agent of CPI, as clearly stipulated in her engagement contract with the
latter.32
Aggrieved, respondents appealed33 to the NLRC.1âwphi1
The NLRC Ruling
In a Decision34 dated June 25, 2013, the NLRC reversed and set aside the LA ruling, and entered a new one ordering
CPI to pay Babiano and Concepcion the amounts of P685,211.76 and P470,754.62, respectively, representing their
commissions from August 9, 2008 to August 8, 2011, as well as 10% attorney's fees of the total monetary awards. 35
While the NLRC initially concurred with the LA that Babiano's acts constituted just cause which would warrant the
termination of his employment from CPI, it, however, ruled that the forfeiture of all earned commissions ofBabiano
under the "Confidentiality of Documents and Non-Compete Clause" is confiscatory and unreasonable and hence,
contrary to law and public policy.36 In this light, the NLRC held that CPI could not invoke such clause to avoid the
payment of Babiano's commissions since he had already earned those monetary benefits and, thus, should have been
released to him. However, the NLRC limited the grant of the money claims in light of Article 291 (now Article 306)37 of
the Labor Code which provides for a prescriptive period of three (3) years. Consequently,· the NLRC awarded unpaid
commissions only from August 9, 2008 to August 8, 2011 - i.e., which was the date when the complaint was
filed.38 Meanwhile, contrary to the LA's finding, the NLRC ruled that Concepcion was CPI's employee, considering that
CPI: (a) repeatedly hired and promoted her since 2002; (b) paid her wages despite referring to it as "subsidy"; and
(c) exercised the power of dismissal and control over her. 39 Lastly, the NLRC granted respondents' claim for attorney's
fees since they were forced to litigate and incurred expenses for the protection of their rights and interests.40
Respondents did not assail the NLRC findings. In contrast, only CPI moved for reconsideration, 41 which the NLRC denied
in a Resolution42 dated October 16, 2013. Aggrieved, CPI filed a petition for certiorari43before the CA.
The CA Ruling
In a Decision44 dated April 8, 2015, the CA affirmed the NLRC ruling with modification increasing the award of unpaid
commissions to Babiano and Concepcion in the amounts of P889,932.42 and P591,953.05, respectively, and imposing
interest of six percent (6%) per annum on all monetary awards from the finality of its decision until fully paid. 45
The CA held that Babiano properly instituted his claim for unpaid commissions before the labor tribunals as it is a
money claim arising from an employer-employee relationship with CPI. In this relation, the CA opined that CPI cannot
withhold such unpaid commissions on the ground of Babiano's alleged breach of the "Confidentiality of Documents and
Non-Compete Clause" integrated in the latter's employment contract, considering that such clause referred to acts
done after the cessation of the employer-employee relationship or to the "post-employment" relations of the parties.
Thus, any such supposed breach thereof is a civil law dispute that is best resolved by the regular courts and not by
labor tribunals.46
Similarly, the CA echoed the NLRC's finding that there exists an employer-employee relationship between Concepcion
and CPI, because the latter exercised control over the performance of her duties as Project Director which is indicative
of an employer-employee relationship. Necessarily therefore, CPI also exercised control over Concepcion's duties in
recruiting, training, and developing directors of sales because she was supervised by Babiano in the performance of
her functions. The CA likewise observed the presence of critical factors which were indicative of an employer-employee
relationship with CPI, such as: (a) Concepcion's receipt of a monthly salary from CPI; and (b) that she performed tasks
besides selling CPI properties. To add, the title of her contract which was referred to as "Contract of Agency for Project
Director" was not binding and conclusive, considering that the characterization of the juridical relationship is essentially
a matter of law that is for the courts to determine, and not the parties thereof. Moreover, the totality of evidence
sustains a finding of employer-employee relationship between CPI and Concepcion.47
Further, the CA held that despite the NLRC's proper application of the three (3)-year prescriptive period under Article
291 of the Labor Code, it nonetheless failed to include all of respondents' earned commissions during that time
- i.e., August 9, 2008 to August 8, 2011 - thus, necessitating the increase in award of unpaid commissions in
respondents' favor.48
Undaunted, CPI sought for reconsideration,49 which was, however, denied in a Resolution50 dated October 12, 2015;
hence, this petition.
The Issue Before the Court
The core issue for the Court's resolution is whether or not the CA erred in denying CPI's petition for certiorari, thereby
holding it liable for the unpaid commissions of respondents.
The Court's Ruling
The petition is partly meritorious.
I.
Article 1370 of the Civil Code provides that "[i]f the terms of a contract are clear and leave no doubt upon the intention
of the contracting parties, the literal meaning of its stipulations shall control."51 In Norton Resources and Development
Corporation v. All Asia Bank Corporation,52the Court had the opportunity to thoroughly discuss the said rule as follows:
The rule is that where the language of a contract is plain and unambiguous, its meaning should be
determined without reference to extrinsic facts or aids. The intention of the parties must be gathered from
that language, and from that language alone. Stated differently, where the language of a written contract is
135
clear and unambiguous, the contract must be taken to mean that which, on its face, it purports to mean,
unless some good reason can be assigned to show that the words should be understood in a different
sense. Courts cannot make for the parties better or more equitable agreements than they themselves have been
satisfied to make, or rewrite contracts because they operate harshly or inequitably as to one of the parties, or alter
them for the benefit of one party and to the detriment of the other, or by construction, relieve one of the parties
from the terms which he voluntarily consented to, or impose on him those which he did not. 53 (Emphases and
underscoring supplied)
Thus, in the interpretation of contracts, the Court must first determine whether a provision or stipulation therein is
ambiguous. Absent any ambiguity, the provision on its face will be read as it is written and treated as the binding law
of the parties to the contract.54
In the case at bar, CPI primarily invoked the "Confidentiality of Documents and Non-Compete Clause" found in
Babiano's employment contract55 to justify the forfeiture of his commissions, viz.:
Confidentiality of Documents and Non-Compete Clause
All records and documents of the company and all information pertaining to its business or affairs or that of its
affiliated companies are confidential and no unauthorized disclosure or reproduction or the same will be made by
you any time during or after your employment.
And in order to ensure strict compliance herewith, you shall not work for whatsoever capacity, either
as an employee, agent or consultant with any person whose business is in direct competition with the
company while you are employed and for a period of one year from date of resignation or termination
from the company.
In the event the undersigned breaches any term of this contract, the undersigned agrees and acknowledges that
damages may not be an adequate remedy and that in addition to any other remedies available to the Company at
law or in equity, the Company is entitled to enforce its rights hereunder by way of injunction, restraining order or
other relief to enjoin any breach or default of this contract.
The undersigned agrees to pay all costs, expenses and attorney's fees incurred by the Company in connection with
the enforcement of the obligations of the undersigned. The undersigned also agrees to .pay the Company all profits,
revenues and income or benefits derived by or accruing to the undersigned resulting from the undersigned's breach
of the obligations hereunder. This Agreement shall be binding upon the undersigned, all employees, agents, officers,
directors, shareholders, partners and representatives of the undersigned and all heirs, successors and assigns of
the foregoing.
Finally, if undersigned breaches any terms of this contract, forms of compensation including
commissions and incentives will be forfeited.56 (Emphases and underscoring supplied)
Verily, the foregoing clause is not only clear and unambiguous in stating that Babiano is barred to "work for whatsoever
capacity x x x with any person whose business is in direct competition with [CPI] while [he is] employed and for a
period of one year from date of [his] resignation or termination from the company," it also expressly provided in no
uncertain terms that should Babiano "[breach] any term of [the employment contract], forms of compensation including
commissions and incentives will be forfeited." Here, the contracting parties - namely Babiano on one side, and CPI as
represented by its COO-Vertical, John Victor R. Antonio, and Director for Planning and Controls, Jose Carlo R. Antonio,
on the other - indisputably wanted the said clause to be effective even during the existence of the employer-employee
relationship between Babiano and CPI, thereby indicating their intention to be bound by such clause by affixing their
respective signatures to the employment contract. More significantly, as CPI's Vice President for Sales, Babiano held a
highly sensitive and confidential managerial position as he "was tasked, among others, to guarantee the achievement
of agreed sales targets for a project and to ensure that his team has a qualified and competent manpower resources
by conducting recruitment activities, training sessions, sales rallies, motivational activities, and evaluation
programs."57 Hence, to allow Babiano to freely move to direct competitors during and soon after his employment with
CPI would make the latter's trade secrets vulnerable to exposure, especially in a highly competitive marketing
environment. As such, it is only reasonable that CPI and Babiano agree on such stipulation in the latter's employment
contract in order to afford a fair and reasonable protection to CPI. 58 Indubitably, obligations arising from contracts,
including employment contracts, have the force of law between the contracting parties and should be complied with in
good faith.59 Corollary thereto, parties are bound by the stipulations, clauses, terms, and conditions they have agreed
to, provided that these stipulations, clauses, terms, and conditions are not contrary to law, morals, public order or
public policy,60 as in this case.
Therefore, the CA erred in limiting the "Confidentiality of Documents and Non-Compete Clause" only to acts done after
the cessation of the employer-employee relationship or to the "post-employment" relations of the parties. As clearly
stipulated, the parties wanted to apply said clause during the pendency of Babiano' s employment, and CPI correctly
invoked the same before the labor tribunals to resist the farmer's claim for unpaid commissions on account of his
breach of the said clause while the employer-employee relationship between them still subsisted. Hence, there is now
a need to determine whether or not Babiano breached said clause while employed by CPI, which would then resolve
the issue of his entitlement to his unpaid commissions.
A judicious review of the records reveals that in his resignation letter61 dated February 25, 2009, Babiano categorically
admitted to CPI Chairman Jose Antonio that on February 12, 2009, he sought employment from First Global, and five
(5) days later, was admitted thereto as vice president. From the foregoing, it is evidently clear that when he sought
and eventually accepted the said position with First Global, he was still employed by CPI as he has not formally resigned
at that time. Irrefragably, this is a glaring violation of the "Confidentiality of Documents and Non-Compete Clause" in
his employment contract with CPI, thus, justifying the forfeiture of his unpaid commissions.
II.
Anent the nature of Concepcion' s engagement, based on case law, the presence of the following elements evince the
existence of an employer-employee relationship: (a) the power to hire, i.e., the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer's power to control the
employee's conduct, or the so called "control test." The control test is commonly regarded as the most important
indicator of the presence or absence of an employer-employee relationship.62 Under this test, an employer-employee
relationship exists where the person for whom the services are performed reserves the right to control not only the
end achieved, but also the manner and means to be used in reaching that end. 63
Guided by these parameters, the Court finds that Concepcion was an employee of CPI considering that: (a) CPI
continuously hired and promoted Concepcion from October 2002 until her resignation on February 23, 2009, 64 thus,
showing that CPI exercised the power of selection and engagement over her person and that she performed functions
that were necessary and desirable to the business of CPI; (b) the monthly "subsidy" and cash incentives that
Concepcion was receiving from CPI are actually remuneration in the concept of wages as it was regularly given to her
on a monthly basis without any qualification, save for the "complete submission of documents on what is a sale
policy";65 (c) CPI had the power to discipline or even dismiss Concepcion as her engagement contract with CPI expressly
conferred upon the latter "the right to discontinue [her] service anytime during the Eeriod of engagement should [she]
fail to meet the performance standards,"66 among others, and that CPI actually exercised such power to dismiss when
it accepted and approved Concepcion' s resignation letter; and most importantly, (d) as aptly pointed out by the CA,
CPI possessed the power of control over Concepcion because in the performance of her duties as Project Director -
particularly in the conduct of recruitment activities, training sessions, and skills development of Sales Directors - she
did not exercise independent discretion thereon, but was still subject to the direct supervision of CPI, acting through
BabiaNo. 67
Besides, while the employment agreement of Concepcion was denominated as a "Contract of Agency for Project
Director," it should be stressed that the existence of employer-employee relations could not be negated by the mere
136
expedient of repudiating it in a contract. In the case of Insular Life Assurance Co., Ltd. v. NLRC,68 it was ruled that
one's employment status is defined and prescribed by law, and not by what the parties say it should be, viz.:
It is axiomatic that the existence of an employer-employee relationship cannot be negated by expressly repudiating it
in the management contract and providing therein that the "employee" is an independent contractor when the terms
of the agreement clearly show otherwise. For, the employment status of a person is defined and prescribed by
law and not by what the parties say it should be. In determining the status of the management contract, the
"four-fold test" on employment earlier mentioned has to be applied.69 (Emphasis and underscoring supplied)
Therefore, the CA correctly ruled that since there exists an employer-employee relationship between Concepcion and
CPI, the labor tribunals correctly assumed jurisdiction over her money claims.
III.
Finally, CPI contends that Concepcion's failure to assail the NLRC ruling awarding her the amount of P470,754.62
representing unpaid commissions rendered the same final and binding upon her. As Such, the CA erred in increasing
her monetary award to P591,953.05.70
The contention lacks merit.
As a general rule, a party who has not appealed cannot obtain any affirmative relief other than the one granted in the
appealed decision.1avvphi1 However, jurisprudence admits an exception to the said rule, such as when strict adherence
thereto shall result in the impairment of the substantive rights of the parties concerned. In Global Resource for
Outsourced Workers, Inc. v. Velasco:71
Indeed, a party who has failed to appeal from a judgment is deemed to have acquiesced to it and can no longer
obtain from the appellate court any affirmative relief other than what was already granted under said
judgment. However, when strict adherence to such technical rule will impair a substantive right, such as
that of an illegally dismissed employee to monetary compensation as provided by law, then equity
dictates that the Court set aside the rule to pave the way for a full and just adjudication of the
case. 72 (Emphasis and underscoring supplied)
In the present case, the CA aptly pointed out that the NLRC failed to account for all the unpaid commissions due to
Concepcion for the period of August 9, 2008 to August 8, 201l.73 Indeed, Concepcion's right to her earned commissions
is a substantive right which cannot be impaired by an erroneous computation of what she really is entitled to. Hence,
following the dictates of equity and in order to arrive at a complete and just resolution of the case, and avoid a
piecemeal dispensation of justice over the same, the CA correctly recomputed Concepcion' s unpaid commissions,
notwithstanding her failure to seek a review of the NLRC's computation of the same.
In sum, the Court thus holds that the commissions of Babiano were properly forfeited for violating the "Confidentiality
of Documents and Non-Compete Clause." On the other hand, CPI remains liable for the unpaid commissions of
Concepcion in the sum of P591,953.05.
WHEREFORE, the petition is PARTLY GRANTED. The Decision dated April 8, 2015 and the Resolution dated October
12, 2015 of the Court of Appeals (CA) in CA-G.R. SP No. 132953 are hereby MODIFIED in that the commissions of
respondent Edwin J. Babiano are deemed FORFEITED. The rest of the CA Decision stands.
G.R. No. 86150 March 2, 1992
GUZMAN, BOCALING & CO., petitioner,
vs.
RAOUL S. V. BONNEVIE, respondent.
The subject of the controversy is a parcel of land measuring six hundred (600) square meters, more or less, with two
buildings constructed thereon, belonging to the Intestate Estate of Jose L. Reynoso.
This property was leased to Raoul S. Bonnevie and Christopher Bonnevie by the administratrix, Africa Valdez de
Reynoso, for a period of one year beginning August 8, 1976, at a monthly rental of P4,000.00.
The Contract of lease contained the following stipulation:
20. — In case the LESSOR desire or decides to sell the lease property, the LESSEES shall be given a first priority to
purchase the same, all things and considerations being equal.
On November 3, 1976 according to Reynoso, she notified the private respondents by registered mail that she was
selling the leased premises for P600.000.00 less a mortgage loan of P100,000.00, and was giving them 30 days from
receipt of the letter within which to exercise their right of first priority to purchase the subject property. She said that
in the event that they did not exercise the said right, she would expect them to vacate the property not later then
March, 1977.
On January 20, 1977, Reynoso sent another letter to private respondents advising them that in view of their failure to
exercise their right of first priority, she had already sold the property.
Upon receipt of this letter, the private respondents wrote Reynoso informing her that neither of them had received her
letter dated November 3, 1976; that they had advised her agent to inform them officially should she decide to sell the
property so negotiations could be initiated; and that they were "constrained to refuse (her) request for the termination
of the lease.
On March 7, 1977, the leased premises were formally sold to petitioner Guzman, Bocaling & Co. The Contract of Sale
provided for immediate payment of P137,500.00 on the purchase price, the balance of P262,500.00 to be paid only
when the premises were vacated.
On April 12, 1977, Reynoso wrote a letter to the private respondents demanding that they vacate the premises within
15 days for their failure to pay the rentals for four months. When they refuse, Reynoso filed a complaint for ejectment
against them which was docketed as Civil Case No. 043851-CV in the then City Court of Manila.
On September 25, 1979, the parties submitted a Compromise Agreement, which provided inter alia that "the defendant
Raoul S.V. Bonnevie shall vacate the premises subject of the Lease Contract, Voluntarily and Peacefully not later than
October 31, 1979."
This agreement was approved by the City Court and became the basis of its decision. However, as the private
respondents failed to comply with the above-qouted stipulation, Reynoso filed a motion for execution of the judgment
by compromise, which was granted on November 8, 1979.
137
On November 12, 1979, private respondent Raoul S. Bonnevie filed a motion to set aside the decision of the City Court
as well as the Compromise Agreement on the sole ground that Reynoso had not delivered to him the "records of
payments and receipts of all rentals by or for the account of defendant ..." The motion was denied and the case was
elevated to the then Court of First Instance. That Court remanded the case to the City Court of Manila for trial on the
merits after both parties had agreed to set aside the Compromise Agreement.
On April 29, 1980, while the ejectment case was pending in the City Court, the private respondents filed an action for
annulment of the sale between Reynoso and herein petitioner Guzman, Bocaling & Co. and cancellation of the transfer
certificate of title in the name of the latter. They also asked that Reynoso be required to sell the property to them
under the same terms ands conditions agreed upon in the Contract of Sale in favor of the petitioner This complaint was
docketed as Civil Case No. 131461 in the then Court of First Instance of Manila.
On May 5, 1980, the City Court decided the ejectment case, disposing as follows:
WHEREFORE, judgment is hereby rendered ordering defendants and all persons holding under them to vacate the
premises at No. 658 Gen. Malvar Street, Malate, Manila, subject of this action, and deliver possession thereof to the
plaintiff, and to pay to the latter; (1) The sum of P4,000.00 a month from April 1, 1977 to August 8, 1977; (2) The
sum of P7,000.00 a month, as reasonable compensation for the continued unlawful use and occupation of said
premises, from August 9, 1977 and every month thereafter until defendants actually vacate and deliver possession
thereof to the plaintiff; (3) The sum of P1,000.00 as and for attorney's fees; and (4) The costs of suit.
The decision was appealed to the then Court of First Instance of Manila, docketed as Civil Case No. 132634 and
consolidated with Civil Case No. 131461. In due time, Judge Tomas P. Maddela, Jr., decided the two cases as follows:
WHEREFORE, premises considered, this Court in Civil Case No. 132634 hereby modifies the decision of the lower
court as follows:
1 Ordering defendants Raoul S.V. Bonnevie and Christopher Bonnevie and all persons holding under them to vacate
the premises at No. 658 Gen. Malvar St., Malate, Manila subject of this action and deliver possessions thereof to
the plaintiff; and
2 To pay the latter the sum of P4,000.00 a month from April 1, 1977 up to September 21, 1980 (when possession
of the premises was turned over to the Sheriff) after deducting whatever payments were made and accepted by
Mrs. Africa Valdez Vda. de Reynoso during said period, without pronouncement as to costs.
As to Civil Case No. 131461, the Court hereby renders judgment in favor of the plaintiff Raoul Bonnevie as against
the defendants Africa Valdez Vda. de Reynoso and Guzman and Bocaling & Co. declaring the deed of sale with
mortgage executed by defendant Africa Valdez Vda. de Reynoso in favor of defendant Guzman and Bocaling null and
void; cancelling the Certificate of Title No. 125914 issued by the Register of Deeds of Manila in the name of Guzman
and Bocaling & Co.,; the name of Guzman and Bocaling & Co.,; ordering the defendant Africa Valdez Vda. de Reynoso
to execute favor of the plaintiff Raoul Bonnevie a deed of sale with mortgage over the property leased by him in the
amount of P400,000.00 under the same terms and conditions should there be any other occupants or tenants in the
premises; ordering the defendants jointly and severally to pay the plaintiff Raoul Bonnevie the amount of P50,000.00
as temperate damages; to pay the plaintiff jointly and severally the of P2,000.00 per month from the time the
property was sold to defendant Guzman and Bocaling by defendant Africa Valdez Vda de Reynoso on March 7, 1977,
up to the execution of a deed of sale of the property by defendant Africa Valdez Vda. de Reynoso in favor of plaintiff
Bonnevie; to pay jointly and severally the plaintiff Bonnevie the amount of P20,000.00 as exemplary damages, for
attorney's fees in the amount of P10,000.00, and to pay the cost of suit.
Both Reynoso and the petitioner company filed with the Court of Appeals a petition for review of this decision. The
appeal was eventually resolved against them in a decision promulgated on March 16, 1988, where the respondent
court substantially affirmed the conclusions of the lower court but reduced the award of damages. 1
Its motion for reconsideration having been denied on December 14, 1986, the petitioner has come to this Court
asserting inter alia that the respondent court erred in ruling that the grant of first priority to purchase the subject
properties by the judicial administratrix needed no authority from the probate court; holding that the Contract of Sale
was not voidable but rescissible; considering the petitioner as a buyer in bad faith ordering Reynoso to execute the
deed of sale in favor of the Bonnevie; and not passing upon the counterclaim. Reynoso has not appealed.
The Court has examined the petitioner's contentions and finds them to be untenable.
Reynoso claimed to have sent the November 3, 1976 letter by registered mail, but the registry return card was not
offered in evidence. What she presented instead was a copy of the said letter with a photocopy of only the face of a
registry return card claimed to refer to the said letter. A copy of the other side of the card showing the signature of the
person who received the letter and the data of the receipt was not submitted. There is thus no satisfactory proof that
the letter was received by the Bonnevies.
Even if the letter had indeed been sent to and received by the private respondent and they did not exercise their right
of first priority, Reynoso would still be guilty of violating Paragraph 20 of the Contract of Lease which specifically stated
that the private respondents could exercise the right of first priority, "all things and conditions being equal." The Court
reads this mean that there should be identity of the terms and conditions to be offered to the Bonnevies and all other
prospective buyers, with the Bonnevies to enjoy the right of first priority.
The selling price qouted to the Bonnevies was P600,000.00, to be fully paid in cash less only the mortgage lien of
P100,000.00. 2 On the other hand, the selling price offered to and accepted by the petitioner was only P400,000.00
and only P137,500.00 was paid in cash while the balance of P272,500.00 was to be paid "when the property (was)
cleared of tenants or occupants. 3
The fact that the Bonnevies had financial problems at that time was no justification for denying them the first option
to buy the subject property. Even if the Bonnevies could not buy it at the price qouted, Reynoso could not sell it to
another for a lower price and under more favorable terms and conditions. Only if the Bonnevies failed to exercise their
right of first priority could Reynoso lawfully sell the subject property to others, and at that only under the same terms
and conditions offered to the Bonnevies.
The Court agrees with the respondent court that it was not necessary to secure the approval by the probate court of
the Contract of Lease because it did not involve an alienation of real property of the estate nor did the term of the
lease exceed one year so as top make it fall under Article 1878(8) of the Civil Code. Only if Paragraph 20 of the Contract
of Lease was activated and the said property was intended to be sold would it be required of the administratrix to
secure the approval of the probate court pursuant to Rule 89 of the Rules of Court.
As a strict legal proposition, no judgment of the probate court was reviewed and eventually annuled collaterally by the
respondent court as contended by the petitioner. The order authorizing the sale in its favor was duly issued by the
probate court, which thereafter approved the Contract of Sale resulting in the eventual issuance if title in favor of the
petitioner. That order was valid insofar as it recognized the existence of all the essential elements of a valid contract
of sale, but without regard to the special provision in the Contract of Lease giving another party the right of first
priority.
Even if the order of the probate court was valid, the private respondents still had a right to rescind the Contract of Sale
because of the failure of Reynoso to comply with her duty to give them the first opportunity to purchase the subject
property.
138
The petitioner argues that assuming the Contract of Sale to be voidable, only the parties thereto could bring an action
to annul it pursuant to Article 1397 of the Civil Code. It is stressed that private respondents are strangers to the
agreement and therefore have no personality to seek its annulment.
The respondent court correctly held that the Contract of Sale was not voidable rescissible. Under Article 1380 to 1381
(3) of the Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to third
persons, like creditors. The status of creditors could be validly accorded the Bonnevies for they had substantial interests
that were prejudiced by the sale of the subject property to the petitioner without recognizing their right of first priority
under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the contracting parties and even to third persons, to
secure reparation for damages caused to them by a contract, even if this should be valid, by means of the restoration
of things to their condition at the moment prior to the celebration of said contract. 4 It is a relief allowed for the
protection of one of the contracting parties and even third persons from all injury and damage the contract may cause,
or to protect some incompatible and preferent right created by the contract. 5 Recission implies a contract which, even
if initially valid, produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity. 6
It is true that the acquisition by a third person of the property subject of the contract is an obstacle to the action for
its rescission where it is shown that such third person is in lawful possession of the subject of the contract and that he
did not act in bad faith. 7 However, this rule is not applicable in the case before us because the petitioner is not
considered a third party in relation to the Contract of Sale nor may its possession of the subject property be regarded
as acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the petitioner cannot be deemed
a purchaser in good faith for the record shows that its categorically admitted it was aware of the lease in favor of the
Bonnevies, who were actually occupying the subject property at the time it was sold to it. Although the Contract of
Lease was not annotated on the transfer certificate of title in the name of the late Jose Reynoso and Africa Reynoso,
the petitioner cannot deny actual knowledge of such lease which was equivalent to and indeed more binding than
presumed notice by registration.
A purchaser in good faith and for value is one who buys the property of another without notice that some other person
has a right to or interest in such property and pays a full and fair price for the same at the time of such purchase or
before he has notice of the claim or interest of some other person in the property. 8 Good faith connotes an honest
intention to abstain from taking unconscientious advantage of another. 9 Tested by these principles, the petitioner
cannot tenably claim to be a buyer in good faith as it had notice of the lease of the property by the Bonnevies and such
knowledge should have cautioned it to look deeper into the agreement to determine if it involved stipulations that
would prejudice its own interests.
The petitioner insists that it was not aware of the right of first priority granted by the Contract of Lease, Assuming this
to be true, we nevertherless agree with the observation of the respondent court that:
If Guzman-Bocaling failed to inquire about the terms of the Lease Contract, which includes Par. 20 on priority right
given to the Bonnevies, it had only itself to blame. Having known that the property it was buying was under lease, it
behooved it as a prudent person to have required Reynoso or the broker to show to it the Contract of Lease in which
Par. 20 is contained.
Finally, the petitioner also cannot invoke the Compromise Agreement which it says canceled the right of first priority
granted to the Bonnevies by the Contract of Lease. This agreement was set side by the parties thereto, resulting in the
restoration of the original rights of the private respondents under the Contract of Lease. The Joint Motion to Remand
filed by Reynoso and the private respondents clearly declared inter alia:
 That without going into the merits of instant petition, the parties have agreed to SET ASIDE the compromise
agreement, dated September 24, 1979 and remand Civil Case No. 043851 of the City Court of Manila to Branch IX
thereof for trial on the merits. 10
We find, in sum, that the respondent court did not commit the errors imputed to it by the petitioner. On the contrary,
its decision is conformable to the established facts and the applicable law and jurisprudence and so must be sustained.
WHEREFORE, the petition in DENIED, with costs against the petitioner. The challeged decision is AFFIRMED in toto. It
is so ordered.
139
[ G.R. No. 226213. September 27, 2017 ]
G. HOLDINGS, INC., PETITIONER, VS. CAGAYAN ELECTRIC POWER AND LIGHT COMPANY, INC. (CEPALCO)
AND FERROCHROME PHILIPPINES, INC., RESPONDENTS.
This is a petition for review on certiorari[1] (Petition) under Rule 45 of the Rules of Court assailing the Decision[2]
dated April 14, 2016 of the Court of Appeals[3] (CA) in CA-G.R. CV No. 03366-MIN and the Resolution[4] dated July
25, 2016 denying the motion for reconsideration filed by petitioner, G. Holdings, Inc. (GHI). The CA Decision denied
the appeal and affirmed the Decision[5] dated July 22, 2013 of the Regional Trial Court of Misamis Oriental, 10th
Judicial Region, Branch 38, Cagayan de Oro City (RTC-CDO) in Civil Case No. 2004-111.
From March 1990, Cagayan Electric Power and Light Company, Inc. (CEPALCO), which operates a light and power
distribution system in Cagayan de Oro City, supplied power to the ferro-alloy smelting plant of Ferrochrome Philippines,
Inc.[6] (FPI) at the PHIVIDEC Industrial Estate in Tagoloan, Misamis Oriental.[7] When FPI defaulted in the payment
of its electric power bills amounting to P16,301,588.06 as of March 1996, CEPALCO demanded payment thereof.[8]
FPI paid CEPALCO on three separate dates the total amount of P13,161,916.44, leaving a balance of P2,899,859.15.[9]
FPI failed again to pay its subsequent electricity bills, thereby increasing its unpaid electric bills to P29,509,240.89 as
of May 1996.[10] For failure to pay FPI's outstanding bills, CEPALCO disconnected the electric power supply to FPI in
May 1996.[11] After sending a statement of account with P30,147,835.65 unpaid bills plus 2% monthly surcharge,
CEPALCO filed a collection suit (Civil Case No. 65789) against FPI in July 1996 before the Regional Trial Court of Pasig
City, Branch 264 (RTC-Pasig).[12]
RTC-Pasig rendered a Decision (Partial Summary Judgment) dated April 22, 1999 in favor of CEPALCO, ordering FPI to
pay CEPALCO P25,608,579.98.[13] On January 19, 2004, RTC-Pasig rendered its Decision[14] in favor of CEPALCO,
affirming the P25,608,579.98 award for basic cost of energy consumed (given in the Partial Summary Judgment), and
ordering the payment of P2,364,703.80 for contracted energy or energy differential and surcharges, PHIVIDEC royalty
and franchise tax.[15]
On February 27, 2004, FPI appealed the Decision of the RTC-Pasig to the CA (CA G.R. CV No. 86228 [CEPALCO collection
case]).[16]
CEPALCO moved for execution pending appeal, which was granted by RTC-Pasig.[17] The writ of execution was issued
on March 30, 2004.[18] FPI filed before the CA a certiorari petition with prayer for temporary restraining order (TRO)
and preliminary injunction (CA G.R. SP No. 83224 [CEPALCO execution case]).[19]
In the meantime, Sheriff Renato B. Baron (Baron) of RTC-Pasig issued notices of levy upon personal and real properties
dated April 1 and 2, 2004 and notices of sale on execution of personal and real properties dated April 1, 2004.[20]
In CA G.R. SP No. 83224 (CEPALCO execution case), the CA issued an initial TRO in its Resolution dated April 6, 2004
and then a writ of preliminary injunction in its Resolution dated June 11, 2004, enjoining the implementation of the
Order granting execution pending appeal.[21]
On April 5, 2004, GHI filed a case (Civil Case No. 2004-111) against Sheriff Baron, CEPALCO and FPI for Nullification
of Sheriffs Levy on Execution and Auction Sale, Recovery of Possession of Properties and Damages before the RTC-
CDO.[22] GHI claimed that the levied ferro-alloy smelting facility, properties and equipment are owned by it as
evidenced by a Deed of Assignment[23] dated March 11, 2003 (the Deed of Assignment) executed by FPI in
consideration of P50,366,926.71.[24]
In the unilateral Deed of Assignment, FPI, as the assignor, through its stockholders and Board of Directors' duly
authorized representative and Acting President, Juanito E. Figueroa, in consideration of obligations amounting to
P50,366,926.71 as of December 31, 2002, inclusive of the interest charges, assigned, transferred, ceded and conveyed
absolutely in favor of GHI, as the assignee, "all of the [assignor's! properties, equipment and facilities, located in
Phividec Industrial Estate, Tagoloan, Misamis Oriental and more particularly described in the attached schedules as
Annexes 'I', 'II', 'III', 'IV['] and 'V'."[25]
Prior to the Deed of Assignment, FPI sent to GFII a letter[26] dated February 28, 2003 wherein the manner by which
the obligation of FPI amounting to P50,366,926.71 (as of December 31, 2002) would be addressed per their earlier
discussions was confirmed, to wit:
The obligation of FPI to G. Holdings amounting to P50,366,926.71 (as of December 31, 2002) shall be covered by
assignment of certain FPI assets sufficient to cover the obligations even at today's depressed metal prices.
The right to the work process owned by FPI shall be made available to G. Holdings under the following options[:]
Option A
As soon as metal prices and major costs justify, FPI shall at its capital and expense operate the plant including the
assets transferred to G. Holdings. Revenue shall be shared with G. Holdings at the rate of 20% of EBITDA (Earnings
Before Interest[,] Taxes, Depreciation and Amortization.)
A minimum of P10.0 million annually shall be shared by G. Holdings. The [c]ost of maintenance and upkeep of assets
shall be covered by FPI.
Option B
[G.] Holdings shall be the entity to operate the plant and business with its capital and expense.
As owner of the rights to the work process, FPI shall be entitled to a share of 10% in the EBITDA with a minimum of
P7.5 million per year.
This arrangement shall be for a minimum of 8 years after which G. Holdings can acquire the rights for an amount
equal to P36.0 M.
All financial requirements shall be shouldered by G. Holdings x x x.
The option shall be decided by G. Holdings within a three[-]year period beyond which the choice shall be made by FPI
within a 3[-] year period. The cycle will be repeated if the plant has not operated for six years from assignment.[27]
The letter bears the conformity of GHI.[28]
CEPALCO filed its answer with compulsory counterclaim and cross-claim.[29] In its counterclaim, CEPALCO assailed
the validity of the Deed of Assignment executed by FPI in favor of GHI in payment of alleged advances from GHI (sister
company of FPI) from 1998 to 2002 amounting to £50,366,926.71, inclusive of interest, as of December 2002. CEPALCO
contended that the Deed of Assignment was null and void for being absolutely simulated and, as a dacion en pago, it
did not bear the conformity of the creditor. GHI and FPI have substantially the same directors. The Deed of Assignment
was in fraud of FPFs creditors as it was made after the RTC-Pasig had already rendered a partial judgment in favor of
CEPALCO and was, therefore, rescissible.[30]
In the meantime, the CA rendered its Decision dated August 14, 2008 in CA G.R. CV No. 86228 (CEPALCO collection
case) granting FPFs appeal in part and the RTC-Pasig Decision was affirmed but modified by deleting the award of the
PHIVIDEC royalty of 1%.[31] FPI elevated the CA Decision to the Court and was docketed as G.R. No. 185892.[32] In
April 2010, the Court denied FPI's petition in its Resolution dated April 21, 2010 for failure of FPI to sufficiently show
that the CA committed any reversible error in the challenged decision and resolution to warrant the Court's discretionary
appellate jurisdiction.[33]
140
In CA G.R. SP No. 83224 (CEPALCO execution case), the CA dismissed FPI's petition for lack of merit and affirmed the
assailed orders of the RTC-Pasig, and FPI's motion for reconsideration was likewise denied.[34]
The RTC-CDO Ruling
Going back to the RTC-CDO case (Civil Case No. 2004-111), the origin of the present case, a Decision[35] dated July
22, 2013 was rendered in favor of CEPALCO and against GHI: (1) rescinding the Deed of Assignment; (2) ordering GHI
to pay CEPALCO actual and exemplary damages as well as attorney's fees; and (3) lifting the writ of preliminary
injunction.[36]
The rescission of the Deed of Assignment by the RTC-CDO was anchored on the presence of several badges of fraud,
to wit: (a) the consideration of the assignment was P50 million while the value of the assets of FPI amounted to P280
million; (b) the existence of the "Outokumpo" work process of smelting (which was allegedly more valuable than the
smelting facility subject of the assignment and without which the smelting facility could not be operated), as well as
its value, were not sufficiently established; (c) the assignment of all or substantially all of FPI's assets was made when
FPI was suffering financially and after the rendition of the partial judgment in favor of CEPALCO; and (d) GHI did not
take exclusive possession of the assets assigned to it.[37]
The dispositive portion of the RTC-CDO Decision states:
WHEREFORE, judgment is hereby rendered in favor of defendant CEPALCO against G Holdings Inc. as follows:
Rescinding the Deed of Assignment dated March 11, 2003 between G Holdings Inc. in favor of Ferrochrome
Philippines Inc.;
Ordering G [HJoldings Inc. to pay defendant CEPALCO the following:
2.a Actual damages in the amount of Php256,587.48;
2.b Exemplary damages in the amount of Php1,000,000.00; and
2.c Attorney's Fees in the amount of Php500,000.00
Lifting the Writ of Preliminary Injunction and finding G. [H]oldings Inc. and Oriental Assurance Corporation liable on
the Phpl Million Preliminary Injunction Bond to partially satisfy the foregoing sums.
GHI appealed the RTC-CDO Decision to the CA.[39] The appeal was docketed as CA-G.R. CV No. 03366-MIN.[40]
The CA Ruling
In its Decision[41] dated April 14, 2016, the CA denied the appeal and affirmed the RTC-CDO Decision. The CA ruled
that the RTC-CDO correctly found the existence of fraud or deliberate intent on the part of FPI and GHI to defraud
CEPALCO. The agreement between GHI and FPI where GHI was given the option to operate the smelting facility using
the alleged "Outokumpo" work process which FPI retained, subject to payment of an agreed amount to FPI as owner
of the rights of the work process, was designed to keep the smelting facility intact and insulated against execution in
satisfaction of CEPALCO's judgment credit. The CA also ruled that the Deed of Assignment was absolutely simulated
and having been executed after the Partial Summary Judgment rendered by the RTC-Pasig, it was done in anticipation
of the adverse final outcome of the RTC-Pasig case. Regarding GHI's contention that CEPALCO failed to pay the filing
fees, the CA noted that CEPALCO filed its Answer with Compulsory Counterclaim and Cross-claim on April 26, 2004. At
that time, the CA reasoned that CEPALCO was not yet liable to pay filing fees. Under Rule 141, Section 7, as amended
by A.M. No. 04-2-04-SC, docket fees were required to be paid for compulsory counterclaims and cross-claims effective
only on August 16, 2004.[42]
The dispositive portion of the CA Decision states:
 WHEREFORE, the instant appeal is DENIED. The Decision dated 22 July 2013 of the Regional Trial Court, 10th Judicial
Region, Branch 38, Cagayan de Oro City, in Civil Case No. 2004-111 is hereby AFFIRMED.
GHI filed a motion for reconsideration, which was denied in a Resolution[44] dated July 25, 2016.
Hence, this Petition. CEPALCO filed its Comment[45] dated May 12, 2017.
Issues
Whether the CA erred in not dismissing CEPALCO's permissive counterclaim for non-payment of docket fees.
Whether the CA erred in holding that the Deed of Assignment was absolutely simulated.
Whether the CA erred in rescinding the Deed of Assignment absent an independent action for rescission.
Whether the CA erred in holding that the Deed of Assignment was done in fraud of creditors and badges of fraud
accompanied its execution.
Whether GHI is entitled to its claims for damages.[46]
The Court's Ruling
Filing Fees of CEPALCO's Counterclaim
In justifying the non-payment of filing fees on the counterclaim of CEPALCO, the CA ruled:
As for the absence of filing fees, it is noteworthy that CEPALCO filed its Answer with Compulsory Counterclaim and
Cross-Claim on 26 April 2004. At that time, CEPALCO was not yet liable to pay filing fees. The Supreme Court
stressed, however, that effective 16 August 2004 under Rule 141, Section 7, as amended by A.M. No. 04-2-04-SC,
docket fees are required to be paid for compulsory counterclaims and cross-claims.[47]
As to the cause of action of GHI in its Complaint in Civil Case No. 2004-111 (RTC-CDO case), the caption states that it
is for: "FOR INJUNCTION AND NULLIFICATION OF SHERIFF'S LEVY ON EXECUTION AND AUCTION SALE; RECOVERY
OF POSSESSION OF PROPERTIES; AND DAMAGES, WITH PRAYER FOR ISSUANCE OF TEMPORARY RESTRAINING
ORDER AND WRIT OF PRELIMINARY INJUNCTION."[48] In its second cause of action, GHI alleges that it is "entitled to
the immediate return and restitution of said [transportation and] mobile equipment."[49] In the Complaint's prayer,
GHI seeks the return of the possession of such properties to GHI, "the rightful owner thereof."[50] As basis of its claim
of ownership, GHI alleges in the Complaint that:
x x x The smelter facility/properties subject of sheriffs Notice of Levy Upon Personal Property and Notice of Levy
Upon Real Property are owned by GHI, having acquired the same through a Deed of Assignment of March 11, 2003
executed by FPI in favor of GHI, in consideration of x x x [P]50,366,926.71 x x x paid by GHI. x x x[51]
In light of the foregoing, CEPALCO's counterclaim and prayer for rescission of the Deed of Assignment can only be
viewed, as it is indeed, a compulsory counterclaim because it "arises out of or is connected with the transaction or
occurrence constituting the subject matter of the opposing party's claim and does not require for its adjudication the
presence of third parties of whom the court cannot acquire jurisdiction."[52] Being a compulsory counterclaim, the CA
was correct when it ruled that as of the filing of CEPALCO's Answer with Compulsory Counterclaim and Cross-Claim on
April 26, 2004, it was not liable to pay filing fees on its compulsory counterclaim. Thus, on the first issue, the CA
committed no reversible error when it did not order the dismissal of CEPALCO's counterclaim, which is compulsory, for
non-payment of docket fees.
Efficacy of the Deed of Assignment
141
Since the second, third and fourth issues concern the legal effect or efficacy, if any, of the Deed of Assignment between
GHI and FPI, they will be discussed together. It is noted, however, that the legality or efficacy of the Deed of Assignment
is attacked in the second issue as being absolutely simulated, while, in the third and fourth issues, it is claimed to be
rescissible for having been undertaken in fraud of creditors, given the presence of badges of fraud in its execution.
Under the Civil Code, there are four defective contracts, namely: (1) rescissible contracts; (2) voidable contracts; (3)
unenforceable contracts; and (4) void or inexistent contracts. However, it has been opined that, strictly speaking, only
the voidable and unenforceable contracts are defective contracts and are the only ones susceptible of ratification unlike
the rescissible ones which suffer from no defect and the void or inexistent contracts which do not exist and are absolute
nullity.[53] Thus, the four may be more appropriately categorized as species or forms of the inefficacy of contracts.[54]
Since the Deed of Assignment is being questioned for being both rescissible and, at the same time, an absolute
simulation, it may be apropos to compare rescissible contracts with void or inexistent contracts.
Rescission has been defined as a remedy to make ineffective a contract validly entered into and which is obligatory
under normal conditions by reason of external causes resulting in a pecuniary prejudice to one of the contracting parties
or their creditors.[55] Rescission, which is a specie or form of the inefficacy of contracts and operates by law and not
through the will of the parties, requires the following: (1) a contract initially valid and (2) a lesion or pecuniary prejudice
to someone.[56]
Under Article 1381 of the Civil Code, the following contracts are rescissible: (1) those which are entered into by
guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things
which are the object thereof; (2) those agreed upon in representation of absentees, if the latter suffer the lesion stated
in the preceding number; (3) those undertaken in fraud of creditors when the latter cannot in any manner collect the
claims due them; (4) those which refer to things under litigation if they have been entered into by the defendant
without the knowledge and approval of the litigants or of competent judicial authority; and (5) all other contracts
specially declared by law to be subject to rescission.
It is further provided under Article 1383 that the action for rescission is a subsidiary one, and cannot thus be instituted
except when the party suffering damage has no other legal means to obtain reparation for the same.
On the other hand, void or inexistent contracts are those which are ipso jure prevented from producing their effects
and are considered as inexistent from the very beginning because of certain imperfections.[57]
Under Article 1409 of the Civil Code, the following contracts are inexistent and void from the beginning: (1) those
whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; (2) those which
are absolutely simulated or fictitious; (3) those whose cause or object did not exist at the time of the transaction; (4)
those whose object is outside the commerce of men; (5) those which contemplate an impossible service; (6) those
where the intention of the parties relative to the principal object of the contract cannot be ascertained; and (7) those
expressly prohibited or declared void by law.
These contracts cannot be ratified and the right to set up the defense of illegality cannot be waived.[58] Further, the
action or defense for the declaration of the inexistence of a contract does not prescribe.
Rescission and nullity can be distinguished in the following manner: (a) by reason of the basis — rescission is based
on prejudice, while nullity is based on a vice or defect of one of the essential elements of a contract; (2) by reason of
purpose — rescission is a reparation of damages, while nullity is a sanction; (3) by reason of effects — rescission affects
private interest while nullity affects public interest; (4) by reason of nature of action — rescission is subsidiary while
nullity is a principal action; (5) by reason of the party who can bring action — rescission can be brought by a third
person while nullity can only be brought by a party; and (6) by reason of susceptibility to ratification — rescissible
contracts need not be ratified while void contracts cannot be ratified.[59]
They can likewise be distinguished as follows: (1) as to defect: In rescissible contracts, there is damage or injury either
to one of the contracting parties or to third persons; while in void or inexistent contracts, one or some of the essential
requisites of a valid contract are lacking in fact or in law; (2) As to effect: The first are considered valid and enforceable
until they are rescinded by a competent court; while the latter do not, as a general rule, produce any legal effect; (3)
As to prescriptibility of action or defense: In the first, the action for rescission may prescribe; while in the latter, the
action for declaration of nullity or inexistence or the defense of nullity or inexistence does not prescribe; (4) As to
susceptibility of ratification: The first are not susceptible of ratification, but are susceptible of convalidation; while the
latter are not susceptible of ratification; (5) As to who may assail contracts: The first may be assailed not only by a
contracting party but even by a third person who is prejudiced or damaged by the contract; while the latter may be
assailed not only by a contracting party but even by a third party whose interest is directly affected; (6) As to how
contracts may be assailed: the first may be assailed directly, and not collaterally; while the latter may be assailed
directly or collaterally.[60]
The enumerations and distinctions above indicate that rescissible contracts and void or inexistent contracts belong to
two mutually exclusive groups. A void or inexistent contract cannot at the same time be a rescissible contract, and vice
versa. The latter, being valid and until rescinded, is efficacious while the former is invalid. There is, however, a
distinction between inexistent contracts and void ones as to their effects. Inexistent contracts produce no legal effect
whatsoever in accordance with the principle "quod nullum est nullum producit effectum"[61] In case of void contracts
where the nullity proceeds from the illegality of the cause of object, when executed (and not merely executory) they
have the effect of barring any action by the guilty to recover what he has already given under the contract.[62]
The RTC-CDO ruled the Deed of Assignment as a rescissible contract and ordered its rescission. However, the CA, while
affirming the RTC-CDO Decision, stated that it "agree[d] with the RTC[-CDO] that the Deed of Assignment was
absolutely simulated"[63] and, at the same time, noted that "the RTC-CDO correctly found the existence of fraud or
deliberate intent on the part of FPI and GHI to defraud CEPALCO."[64] Unfortunately, however, and contrary to what
the CA declared, nowhere is it ruled in the RTC-CDO Decision that the Deed of Assignment was absolutely simulated.
Given a seemingly conflicting finding or ruling by the RTC-CDO and the CA as to the classification of the Deed of
Assignment — whether rescissible or inexistent, it behooves the Court to resolve the conflict.
Under Article 1345 of the Civil Code, simulation of a contract may be absolute, when the parties do not intend to be
bound at all, or relative, when the parties conceal their true agreement. The former is known as contracto simulado
while the latter is known as contracto disimulado.[65] An absolutely simulated or fictitious contract is void while a
relatively simulated contract when it does not prejudice a third person and is not intended for any purpose contrary to
law, morals, good customs, public order or public policy binds the parties to their real agreement.[66]
In Vda. de Rodriguez v. Rodriguez,[67] the Court, speaking through the renowned civilist, Justice J.B.L. Reyes, stated
that:
x x x the characteristic of simulation is the fact that the apparent contract is not really desired or intended to produce
legal effects or in any way alter the juridical situation of the parties. Thus, where a person, in order to place his
property beyond the reach of his creditors, simulates a transfer of it to another, he does not really intend to divest
himself of his title and control of the property; hence, the deed of transfer is but a sham. x x x[68]
The Court, in Heirs of Spouses Intac v. CA,[69] reiterated that:
142
In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be
bound by it. "The main characteristic of an absolute simulation is that the apparent contract is not really desired or
intended to produce legal effect or in any way alter the juridical situation of the parties." "As a result, an absolutely
simulated or fictitious contract is void, and the parties may recover from each other what they may have given under
the contract."[70]
In the Deed of Assignment, did FPI intend to divest itself of its title and control of the properties assigned therein?
The lack of intention on the part of FPI to divest its ownership and control of "all of [its] properties, equipment and
facilities, located in Phividec Industrial Estate, Tagoloan, Misamis Oriental"[71] — in spite of the wordings in the Deed
of Assignment that FPI "assigned, transferred, ceded and conveyed [them] x x x absolutely in favor of [GHI]"[72] —
is evident from the letter dated February 28, 2003 which reveals the true intention of FPI and GHI.
In the letter dated February 28, 2003, it is there provided that the right to the work process, otherwise known as
"Outokumpo," was to be retained by FPI and would only be made available to GHI under two options. One option even
gave FPI the option to operate the assigned assets with the obligation to pay GHI a guaranteed revenue. While GHI
was given the first crack to choose which of the two options to take, such chosen option would only last for three years,
and subsequently, FPI would make the choice and the option chosen by FPI would last for the next three years. The
cycle would then be repeated if the ferro-alloy plant would not be operated for six years from assignment.[73] What is
evident, therefore, in the delineation of the different options available to FPI and GHI in the settlement of FPI's
obligations to the latter is that FPI did not intend to really assign its assets "absolutely" to GHI. Stated differently, this
letter belies the wordings of the Deed of Assignment that, it should be emphasized, was executed a mere 11 days after
the letter, that is, on March 11, 2003.
That there was no intention to absolutely assign to GHI all of FPI's assets was confirmed by the finding of the RTC-CDO
that, according to FPI's Acting President, Juanito E. Figueroa, "GHI cannot operate the [equipment, machinery and
smelting facilities] without the patented 'Outokumpo' process and GHI has not been operating the same."[74]
Moreover, the equipment and machinery remain physically in the plant premises, slowly depreciating with the passage
of time, and, worse, there also appears to be no effective delivery as the premises on which these are located remain
under the control of FPI which continues to employ the security and skeletal personnel in the plant premises.[75]
Thus, in executing the Deed of Assignment, FPI's intention was not to transfer absolutely the assigned assets
(admittedly valued at about P280 Million[76]) to GHI in payment of FPI's obligations to GHI amounting to
P50,366,926.71.[77] FPI, as shown above, did not really intend to divest itself of its title and control of the assigned
properties. FPI's real intention was, borrowing the words of Justice J.B.L Reyes in Rodriguez, to place them beyond the
reach of its creditor CEPALCO. This was astutely observed by the CA Decision, viz.:
x x x The Deed of Assignment was executed while Civil Case No. 65789 was already pending with the RTC-Pasig and
after the Partial Summary Judgment was rendered on 22 April 1999. In anticipation of the adverse final outcome of
Civil Case No. 65789 as promulgated in the 19 January 2004 Decision of the RTC-Pasig, GHI and FPI executed the
Deed of Assignment. Hence, the presumption of fraud set in by operation of the law against the sister companies,
FPI, then already the judgment debtor, and GHI.[78]
As to the presence of badges of fraud, which the RTC-CDO found to have existed and affirmed by the CA, they do, in
fact, confirm the intention of FPI to defraud CEPALCO. But these findings do not thereby render as rescissible the Deed
of Assignment under Article 1381(3). Rather, they fortify the finding that the Deed of Assignment was "not really
desired or intended to produce legal effects or in any way alter the juridical situation of the parties" or, put differently,
that the Deed of Assignment was a sham, or a contracto simulado.
Thus, given the foregoing, the Deed of Assignment is declared inexistent for being absolutely simulated or fictitious.
Accordingly, the CA correctly ruled that the Deed of Assignment was absolutely simulated, although it was in error in
affirming the rescission ordered by the RTC-CDO because, as explained above, rescissible contracts and void or
inexistent contracts belong to two mutually exclusive groups. This error, however, does not justify the granting of the
Petition.
Entitlement to Damages
The Court's declaration of the inexistence of the Deed of Assignment renders the resolution of the fifth issue — on
GHI's entitlement to damages — superfluous. Instead, the dismissal of its complaint for lack of cause of action is
warranted.
WHEREFORE, the Petition is hereby DENIED for lack of merit. The Court of Appeals' Decision dated April 14, 2016 and
Resolution dated July 25, 2016 in CA-G.R. CV No. 03366-MIN as well as the Decision dated July 22, 2013 of the
Regional Trial Court of Cagayan de Oro City, Branch 38 in Civil Case No. 2004-111 are hereby AFFIRMED with
MODIFICATIONS. The Deed of Assignment dated March 11, 2003 executed by respondent Ferrochrome Philippines,
Inc. in favor of petitioner G. Holdings, Inc. is declared inexistent for being absolutely simulated; the complaint of
petitioner G. Holdings, Inc. is dismissed for lack of cause of action; and pursuant to Nacar v. Gallery Frames,[79] the
total amount awarded in the RTC-CDO Decision shall earn 6% interest per year from the date of finality of this Decision
until fully paid.
143
G.R. No. 215014
REBECCA FULLIDO, Petitioner,
vs.
GINO GRILLI, Respondent.
This is a petition for review on certiorari seeking to reverse and set aside the May 31, 2013 Decision1 and the September
24, 20142 Resolution of the Court of Appeals (CA) in CA-G.R. CEB-SP No. 06946, which affirmed the April 26, 2012
Decision3 of the Regional Trial Court, Branch 47, Tagbilaran City (RTC) in Civil Case No. 7895, reversing the March 31,
2011 Decision4 of the Municipal Circuit Trial Court, Dauis, Bohol (MCTC) in Civil Case No. 244, a case for unlawful
detainer filed by Gino Grilli (Grilli) against Rebecca Fullido (Fullido).
The Facts
Sometime in 1994, Grilli, an Italian national, met Fullido in Bohol and courted her. In 1995, Grilli decided to build a
residential house where he and Fullido would to stay whenever he would be vacationing in the country. Grilli financially
assisted Fullido in procuring a lot located in Biking I, Dauis, Bohol, from her parents which was registered in her name
under Transfer Certificate of Title (TCT) No. 30626.5 On the said property, they constructed a house, which was funded
by Grilli. Upon completion, they maintained a common-law relationship and lived there whenever Grilli was on vacation
in the Philippines twice a year.
In 1998, Grilli and Fullido executed a contract of lease, 6 a memorandum of agreement7 (MOA) and a special power of
attorney8 (SPA), to define their respective rights over the house and lot.
The lease contract stipulated, among others, that Grilli as the lessee, would rent the lot, registered in the name of
Fullido, for a period of fifty (50) years, to be automatically renewed for another fifty (50) years upon its expiration in
the amount of P10,000.00 for the whole term of the lease contract; and that Fullido as the lessor, was prohibited from
selling, donating, or encumbering the said lot without the written consent of Grilli. The pertinent provisions of the lease
contract over the house and lot are as follows:
That for and in consideration of the total amount of rental in the amount of TEN THOUSAND (P10,000.00) PESOS,
Philippine Currency, paid by the LESSEE to the LESSOR, receipt of which is hereby acknowledged, the latter hereby
leases to the LESSEE a house and lot, and all the furnishings found therein, land situated at Biking I, Dauis, Bohol,
Philippines, absolutely owned and belonging to the LESSOR and particularly described as follows, to wit:
That the LESSOR and the LESSEE hereby agree as they have agreed to be bound by the following terms and
conditions, to wit:
1. That the term of the lease shall be FIFTY (50) YEARS from August 16, 1998 to August 15, 2048, automatically
renewed for the same term upon the expiration thereof;
7. That the LESSOR is strictly prohibited to sell, donate, encumber, or in any manner convey the property subject
of this lease to any third person, without the written consent of the LESSEE. 9
The said lease contract was duly registered in the Register of Deeds of Bohol.
The MOA, on the other hand, stated, among others, that Grilli paid for the purchase price of the house and lot; that
ownership of the house and lot was to reside with him; and that should the common-law relationship be terminated,
Fullido could only sell the house and lot to whomever Grilli so desired. Specifically, the pertinent terms of the MOA
read:
 NOW WHEREFORE, FOR AND IN CONSIDERATION of the foregoing premises, the parties hereto agree as they hereby
covenant to agree that the FIRST PARTY (Grilli) shall permanently reside on the property as above-mentioned,
subject to the following terms and conditions:
1. That ownership over the above-mentioned properties shall reside absolutely with herein FIRST PARTY, and the
SECOND PARTY (Fullido) hereby acknowledges the same;
2. That the SECOND PARTY is expressly prohibited to sell the above-stated property, except if said sale is with the
conformity of the FIRST PARTY;
3. That the SECOND PARTY hereby grants the FIRST PARTY, the absolute and irrevocable right, to reside in the
residential building so constructed during his lifetime, or any time said FIRST PARTY may so desire;
4. That in the event the common-law relationship terminates, or when the SECOND PARTY marries another, or
enters into another common-law relationship with another, said SECOND PARTY shall be obliged to execute a DEED
OF ABSOLUTE SALE over the above-stated parcel of land and residential building, in favor of whomsoever the FIRST
PARTY may so desire, and be further obliged to turn over the entire consideration of the said sale to the FIRST
PARTY , or if the law shall allow, the FIRST PARTY shall retain ownership of the said land, as provided for in
paragraph 7 below;
xxx
7. That if the cases referred to in paragraph 4 shall occur and in the event that a future law shall be passed allowing
foreigners to own real properties in the Philippines, the ownership of the above-described real properties shall
pertain to the FIRST PARTY, and the herein undersigned SECOND PARTY undertakes to execute all the necessary
deeds, documents, and contracts to effect the transfer of title in favor of the FIRST PARTY;
Lastly, the SPA allowed Grilli to administer, manage, and transfer the house and lot on behalf of Fullido. Initially, their
relationship was harmonious, but it turned sour after 16 years of living together. Both charged each other with infidelity.
They could not agree who should leave the common property, and Grilli sent formal letters to Fullido demanding that
she vacate the property, but these were unheeded. On September 8, 2010, Grilli filed a complaint for unlawful detainer
with prayer for issuance of preliminary injunction against Fullido before the MCTC, docketed as Civil Case No. 244.
Grilli’s Position
The complaint stated that the common-law relationship between Grilli and Fullido began smoothly, until Grilli discovered
that Fullido was pregnant when he arrived in the Philippines in 2002. At first, she told him that the child she was
carrying was his. After the delivery of the child, however, it became apparent that the child was not his because of the
discrepancy between the child’s date of birth and his physical presence in the Philippines and the difference between
the baby’s physical features and those of Grilli. Later on, she admitted that the child was indeed sired by another man.
Grilli further claimed that he was so devastated that he decided to end their common-law relationship. Nevertheless,
he allowed Fullido to live in his house out of liberality and generosity, but this time, using another room. He did not
demand any rent from Fullido over the use of his property.
After a year, Fullido became more hostile and difficult to handle. Grilli had to make repairs with his house every time
he arrived in the Philippines because she was not maintaining it in good condition. Fullido also let her two children,
siblings and parents stay in his house, which caused damage to the property. He even lost his personal belongings
inside his house on several occasions. Grilli verbally asked Fullido to move out of his house because they were not
getting along anymore, but she refused. He could no longer tolerate the hostile attitude shown to him by Fullido and
her family, thus, he filed the instant complaint.
Fullido’s Position
144
Fullido countered that she met Grilli sometime in 1993 when she was still 17 years old working as a cashier in Alturas
Supermarket. Grilli was then a tourist in Bohol who persistently courted her.
At first, Fullido was hesitant to the advances of Grilli because she could not yet enter into a valid marriage. When he
assured her and her parents that they would eventually be married in three years, she eventually agreed to have a
relationship with him and to live as common-law spouses. Sometime in 1995, Grilli offered to build a house for her on
a parcel of land she exclusively owned which would become their conjugal abode. Fullido claimed that their relationship
as common-law spouses lasted for more than 18 years until she discovered that Grilli had found a new and younger
woman in his life. Grilli began to threaten and physically hurt her by knocking her head and choking her.
When Fullido refused to leave their house even after the unlawful detainer case was filed, Grilli again harassed,
intimidated and threatened to hurt her and her children. Thus, she filed a petition for Temporary Protection Order (TPO)
and Permanent Protection Order (PPO) against Grilli under Republic Act (R.A.) No. 9262 before the Regional Trial Court,
Branch 3, Bohol (RTC-Branch 3). In an Order,11 dated February 23, 2011, the RTC-Branch 3 granted the TPO in favor
of Fullido and directed that Grilli must be excluded from their home.
Fullido finally asserted that, although it was Grilli who funded the construction of the house, she exclusively owned the
lot and she contributed to the value of the house by supervising its construction and maintaining their household.
The MCTC Ruling
In its decision, dated March 31, 2011, the MCTC dismissed the case after finding that Fullido could not be ejected from
their house and lot. The MCTC opined that she was a co-owner of the house as she contributed to it by supervising its
construction. Moreover, the MCTC respected the TPO issued by RTC-Branch 3 which directed that Grilli be removed
from Fullido’s residence. The dispositive portion of the MCTC decision reads:
WHEREFORE, judgment is hereby rendered:
1. Dismissing the instant case;
2. Ordering the Plaintiff to pay to Defendant the amount of Fifty Thousand Pesos (P50,000.00) as moral damages,
and Twenty Thousand Pesos (P20,000.00) as exemplary damages, and Twenty Thousand Pesos (P20,000.00) as
Attorney’s Fees; and
3. Denying the prayer for the issuance of Preliminary Mandatory Injunction.
Not in conformity, Grilli elevated the matter before the RTC.
The RTC Ruling
In its decision, dated April 26, 2012, the RTC reversed and set aside the MCTC decision. The RTC was of the view that
Grilli had the exclusive right to use and possess the house and lot by virtue of the contract of lease executed by the
parties. Since the period of lease had not yet expired, Fullido, as lessor, had the obligation to respect the peaceful and
adequate enjoyment of the leased premises by Grilli as lessee. The RTC opined that absent a judicial declaration of
nullity of the contract of lease, its terms and conditions were valid and binding. As to the TPO, the RTC held that the
same had no bearing in the present case which merely involved the possession of the leased property.
Aggrieved, Fullido instituted an appeal before the CA alleging that her land was unlawfully transferred by Grilli to a
certain Jacqueline Guibone (Guibone), his new girlfriend, by virtue of the SPA earlier executed by Fullido.
The CA Ruling
In its assailed decision, dated May 31, 2013, the CA upheld the decision of the RTC emphasizing that in an ejectment
case, the only issue to be resolved would be the physical possession of the property. The CA was also of the view that
as Fullido executed both the MOA and the contract of lease, which gave Grilli the possession and use of the house and
lot, the same constituted as a judicial admission that it was Grilli who had the better right of physical possession. The
CA stressed that, if Fullido would insist that the said documents were voidable as her consent was vitiated, then she
must institute a separate action for annulment of contracts. Lastly, the CA stated that the TPO issued by the RTC-
Branch 3 under Section 21 of R.A. No. 9262 was without prejudice to any other action that might be filed by the parties.
Fullido filed a motion for reconsideration,13 but she failed to attach the proofs of service of her motion. For said reason,
it was denied by the CA in its assailed resolution, dated September 24, 2014.
Hence, this present petition raising the following:
ISSUES
I. THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND DEPARTED FROM ESTABLISHED LAW AND
JURISPRUDENCE IN DENYING THE PETITION FOR REVIEW AND IN AFFIRMING THE DECISION OF RTC
BOHOL BRANCH 47 EJECTING PETITIONER FROM THE SUBJECT PROPERTIES, WHICH EJECTMENT ORDER
IS ANCHORED ON PATENTLY NULL AND VOID CONTRACTS.
II. THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND DEPARTED FROM ESTABLISHED LAW IN
AFFIRMING THE DECISION OF THE RTC BOHOL BRANCH 47 EJECTING PETITIONER FROM THEIR
CONJUGAL ABODE WHERE RESPONDENT HAS BEEN EARLIER ORDERED TO VACATE BY VIRTUE OF A
PERMANENT PROTECTION ORDER THUS EFFECTIVELY SETTING ASIDE, NEGATING AND/OR VIOLATING
AN ORDER ISSUED BY A COURT OF CO-EQUAL JURISDICTION.
III. THE HONORABLE COURT OF APPEALS LIKEWISE ERRED AND DEPARTED FROM ESTABLISHED LAW
AND JURISPRUDENCE IN DENYING THE PETITIONER’S MOTION FOR RECONSIDERATION, AMONG
OTHERS, FOR NONCOMPLIANCE WITH SECTION 1 RULE 52 VIS-À-VIS SECTION 13, RULE 13 OF THE 1997
RULES OF CIVIL PROCEDURE.14
Fullido argues that she could not be ejected from her own lot based on the contract of lease and the MOA because
those documents were null and void for being contrary to the Constitution, the law, public policy, morals and customs;
that the MOA prevented her from disposing or selling her own land, while the contract of lease favoring Grilli, a
foreigner, was contrary to the Constitution as it was a for a period of fifty (50) years, and, upon termination, was
automatically renewable for another fifty (50) years; that the TPO, which became a PPO by virtue of the July 5, 2011
Decision15 of RTC-Branch 3, should not be defeated by the ejectment suit; and that the CA should have liberally applied
its procedural rules and allowed her motion for reconsideration.
In his Comment,16 Grilli countered that he was the rightful owner of the house because a foreigner was not prohibited
from owning residential buildings; that the lot was no longer registered in the name of Fullido as it was transferred to
Guibone, covered by TCT No. 101-2011000335; that if Fullido wanted to assail the lease contract, she should have first
filed a separate action for annulment of the said contract, which she did in Civil Case No. 8094, pending before the
Regional Trial Court of Bohol; and that by signing the contracts, Fullido fully agreed with their terms and must abide
by the same.
In her Reply,17 Fullido insisted that the contract of lease and the MOA were null and void, thus, these could not be the
source of Grilli’s de facto possession.
145
The Court’s Ruling
The Court finds the petition meritorious.
Unlawful detainer is an action to recover possession of real property from one who unlawfully withholds possession
thereof after the expiration or termination of his right to hold possession under any contract, express or implied. The
possession of the defendant in unlawful detainer is originally legal but became illegal due to the expiration or
termination of the right to possess. The only issue to be resolved in an unlawful detainer case is the physical or material
possession of the property involved, independent of any claim of ownership by any of the parties. 18
In this case, Fullido chiefly asserts that Grilli had no right to institute the action for unlawful detainer because the lease
contract and the MOA, which allegedly gave him the right of possession over the lot, were null and void for violating
the Constitution. Contrary to the findings of the CA, Fullido was not only asserting that the said contracts were
merely voidable, but she was consistently invoking that the same were completely void. 19 Grilli, on the other
hand, contends that Fullido could not question the validity of the said contracts in the present ejectment suit unless
she instituted a separate action for annulment of contracts. Thus, the Court is confronted with the issue of whether a
contract could be declared void in a summary action of unlawful detainer.
Under the circumstances of the case, the Court answers in the affirmative.
A void contract cannot be the source of any right; it cannot be utilized in an ejectment suit
A void or inexistent contract may be defined as one which lacks, absolutely either in fact or in law, one or some of the
elements which are essential for its validity. 20 It is one which has no force and effect from the very beginning, as if it
had never been entered into; it produces no effect whatsoever either against or in favor of anyone. 21 Quod nullum est
nullum producit effectum. Article 1409 of the New Civil Code explicitly states that void contracts also cannot be ratified;
neither can the right to set up the defense of illegality be waived.22 Accordingly, there is no need for an action to set
aside a void or inexistent contract.23
A review of the relevant jurisprudence reveals that the Court did not hesitate to set aside a void contract even in an
action for unlawful detainer. In Spouses Alcantara v. Nido,24 which involves an action for unlawful detainer, the
petitioners therein raised a defense that the subject land was already sold to them by the agent of the owner. The
Court rejected their defense and held that the contract of sale was void because the agent did not have the written
authority of the owner to sell the subject land.
Similarly, in Roberts v. Papio,25 a case of unlawful detainer, the Court declared that the defense of ownership by the
respondent therein was untenable. The contract of sale invoked by the latter was void because the agent did not have
the written authority of the owner. A void contract produces no effect either against or in favor of anyone.
In Ballesteros v. Abion,26 which also involves an action for unlawful detainer, the Court disallowed the defense of
ownership of the respondent therein because the seller in their contract of sale was not the owner of the subject
property. For lacking an object, the said contract of sale was void ab initio.
Clearly, contracts may be declared void even in a summary action for unlawful detainer because, precisely, void
contracts do not produce legal effect and cannot be the source of any rights. To emphasize, void contracts may not be
invoked as a valid action or defense in any court proceeding, including an ejectment suit. The next issue that must be
resolved by the Court is whether the assailed lease contract and MOA are null and void.
<>The lease contract and the MOA circumvent the constitutional restraint against foreign ownership of lands.
Under Section 1 of Article XIII of the 1935 Constitution, natural resources shall not be alienated, except with respect
to public agricultural lands and in such cases, the alienation is limited to Filipino citizens. Concomitantly, Section
5 thereof states that, save in cases of hereditary succession, no private agricultural land shall be transferred or assigned
except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain in the
Philippines. The prohibition on the transfer of lands to aliens was adopted in the present 1987 Constitution, under
Sections 2, 3 and 7 of Article XII thereof. Agricultural lands, whether public or private, include residential, commercial
and industrial lands. The purpose of prohibiting the transfer of lands to foreigners is to uphold the conservation of our
national patrimony and ensure that agricultural resources remain in the hands of Filipino citizens. 27
The prohibition, however, is not limited to the sale of lands to foreigners. It also covers leases of lands amounting to
the transfer of all or substantially all the rights of dominion. In the landmark case of Philippine Banking Corporation v.
Lui She,28 the Court struck down a lease contract of a parcel of land in favor of a foreigner for a period of ninety-nine
(99) years with an option to buy the land for fifty (50) years. Where a scheme to circumvent the Constitutional
prohibition against the transfer of lands to aliens is readily revealed as the purpose for the contracts, then the illicit
purpose becomes the illegal cause rendering the contracts void. Thus, if an alien is given not only a lease of, but
also an option to buy, a piece of land by virtue of which the Filipino owner cannot sell or otherwise dispose
of his property, this to last for 50 years, then it becomes clear that the arrangement is a virtual transfer of
ownership whereby the owner divests himself in stages not only of the right to enjoy the land but also of the right to
dispose of it — rights which constitute ownership. If this can be done, then the Constitutional ban against alien
landholding in the Philippines, is indeed in grave peril.29
In Llantino v. Co Liong Chong,30 however, the Court clarified that a lease contract in favor of aliens for a reasonable
period was valid as long as it did not have any scheme to circumvent the constitutional prohibition, such as depriving
the lessors of their right to dispose of the land. The Court explained that "[a]liens are not completely excluded by the
Constitution from use of lands for residential purposes. Since their residence in the Philippines is temporary, they may
be granted temporary rights such as a lease contract which is not forbidden by the Constitution. Should they desire to
remain here forever and share our fortune and misfortune, Filipino citizenship is not impossible to acquire." 31 The
lessee-foreigner therein eventually acquired Filipino citizenship.
Consequently, Presidential Decree (P.D.) No. 471 was enacted to regulate the lease of lands to aliens.1avvphi1 It
provides that the maximum period allowable for the duration of leases of private lands to aliens or alien-owned
corporations, associations, or entities not qualified to acquire private lands in the Philippines shall be twenty-five (25)
years, renewable for another period of twenty-five (25) years upon mutual agreement of both lessor and lessee. 32 It
also provides that any contract or agreement made or executed in violation thereof shall be null and void ab
initio.33
Based on the above-cited constitutional, legal and jurisprudential limitations, the Court finds that the lease contract
and the MOA in the present case are null and void for virtually transferring the reigns of the land to a foreigner.
As can be gleaned from the contract, the lease in favor of Grilli was for a period of fifty (50) years, automatically
extended for another fifty (50) years upon the expiration of the original period. Moreover, it strictly prohibited Fullido
from selling, donating, or encumbering her land to anyone without the written consent of Grilli. For a measly
consideration of P10,000.00, Grilli would be able to absolutely occupy the land of Fullido for 100 years, and she is
powerless to dispose the same. The terms of lease practically deprived Fullido of her property rights and effectively
transferred the same to Grilli.
146
Worse, the dominion of Grilli over the land had been firmly cemented by the terms of the MOA as it reinforced Grilli’s
property rights over the land because, first, it brazenly dictated that ownership of the land and the residential building
resided with him. Second, Fullido was expressly prohibited from transferring the same without Grilli’s
conformity. Third, Grilli would permanently reside in the residential building. Fourth, Grilli may capriciously dispose
Fullido’s property once their common-law relationship is terminated. This right was recently exercised when the land
was transferred to Guibone. Lastly, Fullido shall be compelled to transfer the land to Grilli if a law would be passed
allowing foreigners to own real properties in the Philippines.
Evidently, the lease contract and the MOA operated hand-in-hand to strip Fullido of any dignified right over her own
property. The term of lease for 100 years was obviously in excess of the allowable periods under P.D. No. 471. Even
Grilli admitted that "this is a case of an otherwise valid contract of lease that went beyond the period of what is legally
permissible."34 Grilli had been empowered to deprive Fullido of her land’s possession, control, disposition and even its
ownership. The jus possidendi, jus utendi, jus fruendi, jus abutendi and, more importantly, the jus disponendi – the
sum of rights which composes ownership – of the property were effectively transferred to Grilli who would safely enjoy
the same for over a century. The title of Fullido over the land became an empty and useless vessel, visible only in
paper, and was only meant as a dummy to fulfill a foreigner’s desire to own land within our soils. It is disturbing how
these documents were methodically formulated to circumvent the constitutional prohibition against land ownership by
foreigners. The said contracts attempted to guise themselves as a lease, but a closer scrutiny of the same revealed
that they were intended to transfer the dominion of a land to a foreigner in violation of Section 7, Article XII of the
1987 Constitution. Even if Fullido voluntary executed the same, no amount of consent from the parties could legalize
an unconstitutional agreement. The lease contract and the MOA do not deserve an iota of validity and must be rightfully
struck down as null and void for being repugnant to the fundamental law. These void documents cannot be the source
of rights and must be treated as mere scraps of paper.
Grilli does not have a cause of action for unlawful detainer
Ultimately, the complaint filed by Grilli was an action for unlawful detainer. Section 1 of Rule 70 of the Rules of Court
lays down the requirements for filing a complaint for unlawful detainer, to wit:
Who may institute proceedings, and when. – Subject to the provision of the next succeeding section, a person
deprived of the possession of any land or building by force, intimidation, threat, strategy, or stealth, or a lessor,
vendor, vendee, or other person against whom the possession of any land or building is unlawfully
withheld after the expiration or termination of the right to hold possession, by virtue of any contract, express or
implied, or the legal representatives or assigns of any such lessor, vendor, vendee, or other person, may, at any
time within one (1) year after such unlawful deprivation or withholding of possession, bring an action in the proper
Municipal Trial Court against the person or persons unlawfully withholding or depriving of possession, or any person
or persons claiming under them, for the restitution of such possession, together with damages and costs.
A complaint sufficiently alleges a cause of action for unlawful detainer if it recites the following: (1) initially, possession
of property by the defendant was by contract with or by tolerance of the plaintiff; (2) eventually, such possession
became illegal upon notice by plaintiff to defendant of the termination of the latter’s right of possession; (3) thereafter,
the defendant remained in possession of the property and deprived the plaintiff of the enjoyment thereof; and (4)
within one year from the last demand on defendant to vacate the property, the plaintiff instituted the complaint for
ejectment.35
The Court rules that Grilli has no cause of action for unlawful detainer against Fullido. As can be gleaned from the
discussion above, the complainant must either be a lessor, vendor, vendee, or other person against whom the
possession of any land or building is unlawfully withheld. In other words, the complainant in an unlawful detainer case
must have some right of possession over the property.
In the case at bench, the lease contract and the MOA, from which Grilli purportedly drew his right of possession, were
found to be null and void for being unconstitutional. A contract that violates the Constitution and the law is null and
void ab initio and vests no rights and creates no obligations. It produces no legal effect at all. 36 Hence, as void contracts
could not be the source of rights, Grilli had no possessory right over the subject land. A person who does not have any
right over a property from the beginning cannot eject another person possessing the same. Consequently, Grilli’s
complaint for unlawful detainer must be dismissed for failure to prove his cause of action.
In Pari Delicto Doctrine is not applicable
On a final note, the Court deems it proper to discuss the doctrine of in pari delicto. Latin for "in equal fault," in pari
delicto connotes that two or more people are at fault or are guilty of a crime. Neither courts of law nor equity will
interpose to grant relief to the parties, when an illegal agreement has been made, and both parties stand in pari
delicto.37
The application of the doctrine of in pari delicto is not always rigid. An accepted exception arises when its application
contravenes well-established public policy. In this jurisdiction, public policy has been defined as that principle of the
law which holds that no subject or citizen can lawfully do that which has a tendency to be injurious to the public or
against the public good.38 Thus, whenever public policy is advanced by either party, they may be allowed to sue for
relief against the transaction.39
In the present case, both Grilli and Fullido were undoubtedly parties to a void contract. Fullido, however, was not
barred from filing the present petition before the Court because the matters at hand involved an issue of public policy,
specifically the Constitutional prohibition against land ownership by aliens. As pronounced in Philippine Banking
Corporation v. Lui She, the said constitutional provision would be defeated and its continued violation sanctioned if the
lands continue to remain in the hands of a foreigner.40 Thus, the doctrine of in pari delicto shall not be applicable in
this case.
WHEREFORE, the petition is GRANTED. The May 31, 2013 Decision of the Court of Appeals and its September 24,
2014 Resolution in CA-G.R. CEB-SP No. 06946 are hereby REVERSED and SET ASIDE. The complaint filed by Gino
Grilli before the Municipal Circuit Trial Court, Dauis-Panglao, Dauis, Bohol, docketed as Civil Case No. 244,
is DISMISSED for lack of cause of action.
147
G.R. No. 160600 January 15, 2014
DOMINGO GONZALO, Petitioner,
vs.
JOHN TARNATE, JR., Respondent.
The doctrine of in pari delicto which stipulates that the guilty parties to an illegal contract are not entitled to any relief,
cannot prevent a recovery if doing so violates the public policy against unjust enrichment.
After the Department of Public Works and Highways (DPWH) had awarded on July 22, 1997 the contract for the
improvement of the Sadsadan-Maba-ay Section of the Mountain Province-Benguet Road in the total amount of 7 014
963 33 to his company, Gonzalo Construction,1 petitioner Domingo Gonzalo (Gonzalo) subcontracted to respondent
John Tarnate, Jr. (Tarnate) on October 15, 1997, the supply of materials and labor for the project under the latter s
business known as JNT Aggregates. Their agreement stipulated, among others, that Tarnate would pay to Gonzalo
eight percent and four percent of the contract price, respectively, upon Tarnate s first and second billing in the project. 2
In furtherance of their agreement, Gonzalo executed on April 6, 1999 a deed of assignment whereby he, as the
contractor, was assigning to Tarnate an amount equivalent to 10% of the total collection from the DPWH for the project.
This 10% retention fee (equivalent to ₱233,526.13) was the rent for Tarnate’s equipment that had been utilized in the
project. In the deed of assignment, Gonzalo further authorized Tarnate to use the official receipt of Gonzalo
Construction in the processing of the documents relative to the collection of the 10% retention fee and in encashing
the check to be issued by the DPWH for that purpose. 3 The deed of assignment was submitted to the DPWH on April
15, 1999. During the processing of the documents for the retention fee, however, Tarnate learned that Gonzalo had
unilaterally rescinded the deed of assignment by means of an affidavit of cancellation of deed of assignment dated April
19, 1999 filed in the DPWH on April 22, 1999;4 and that the disbursement voucher for the 10% retention fee had then
been issued in the name of Gonzalo, and the retention fee released to him.5
Tarnate demanded the payment of the retention fee from Gonzalo, but to no avail. Thus, he brought this suit against
Gonzalo on September 13, 1999 in the Regional Trial Court (RTC) in Mountain Province to recover the retention fee of
₱233,526.13, moral and exemplary damages for breach of contract, and attorney’s fees. 6
In his answer, Gonzalo admitted the deed of assignment and the authority given therein to Tarnate, but averred that
the project had not been fully implemented because of its cancellation by the DPWH, and that he had then revoked the
deed of assignment. He insisted that the assignment could not stand independently due to its being a mere product of
the subcontract that had been based on his contract with the DPWH; and that Tarnate, having been fully aware of the
illegality and ineffectuality of the deed of assignment from the time of its execution, could not go to court with unclean
hands to invoke any right based on the invalid deed of assignment or on the product of such deed of assignment. 7
Ruling of the RTC
On January 26, 2001, the RTC, opining that the deed of assignment was a valid and binding contract, and that Gonzalo
must comply with his obligations under the deed of assignment, rendered judgment in favor of Tarnate as follows:
WHEREFORE, premises considered and as prayed for by the plaintiff, John Tarnate, Jr. in his Complaint for Sum of
Money, Breach of Contract With Damages is hereby RENDERED in his favor and against the above-named defendant
Domingo Gonzalo, the Court now hereby orders as follows:
1. Defendant Domingo Gonzalo to pay the Plaintiff, John Tarnate, Jr., the amount of TWO HUNDRED THIRTY THREE
THOUSAND FIVE HUNDRED TWENTY SIX and 13/100 PESOS (₱233,526.13) representing the rental of equipment;
2. Defendant to pay Plaintiff the sum of THIRTY THOUSAND (₱30,000.00) PESOS by way of reasonable Attorney’s
Fees for having forced/compelled the plaintiff to litigate and engage the services of a lawyer in order to protect his
 interest and to enforce his right. The claim of the plaintiff for attorney’s fees in the amount of FIFTY THOUSAND
PESOS (₱50,000.00) plus THREE THOUSAND PESOS (₱3,000.00) clearly appears to be unconscionable and
therefore reduced to Thirty Thousand Pesos (₱30,000.00) as aforestated making the same to be reasonable;
3. Defendant to pay Plaintiff the sum of FIFTEEN THOUSAND PESOS (₱15,000.00) by way of litigation expenses;
4. Defendant to pay Plaintiff the sum of TWENTY THOUSAND PESOS (₱20,000.00) for moral damages and for the
breach of contract; and
5. To pay the cost of this suit.
Award of exemplary damages in the instant case is not warranted for there is no showing that the defendant acted in
a wanton, fraudulent, reckless, oppressive or malevolent manner analogous to the case of Xentrex Automotive, Inc.
vs. Court of Appeals, 291 SCRA 66.8
Gonzalo appealed to the Court of Appeals (CA).
Decision of the CA
On February 18, 2003, the CA affirmed the RTC.9
Although holding that the subcontract was an illegal agreement due to its object being specifically prohibited by Section
6 of Presidential Decree No. 1594; that Gonzalo and Tarnate were guilty of entering into the illegal contract in violation
of Section 6 of Presidential Decree No. 1594; and that the deed of assignment, being a product of and dependent on
the subcontract, was also illegal and unenforceable, the CA did not apply the doctrine of in pari delicto, explaining that
the doctrine applied only if the fault of one party was more or less equivalent to the fault of the other party. It found
Gonzalo to be more guilty than Tarnate, whose guilt had been limited to the execution of the two illegal contracts while
Gonzalo had gone to the extent of violating the deed of assignment. It declared that the crediting of the 10% retention
fee equivalent to ₱233,256.13 to his account had unjustly enriched Gonzalo; and ruled, accordingly, that Gonzalo
should reimburse Tarnate in that amount because the latter’s equipment had been utilized in the project.
Upon denial of his motion for reconsideration,10 Gonzalo has now come to the Court to seek the review and reversal of
the decision of the CA.
Issues
Gonzalo contends that the CA erred in affirming the RTC because: (1) both parties were in pari delicto; (2) the deed
of assignment was void; and (3) there was no compliance with the arbitration clause in the subcontract.
Gonzalo submits in support of his contentions that the subcontract and the deed of assignment, being specifically
prohibited by law, had no force and effect; that upon finding both him and Tarnate guilty of violating the law for
executing the subcontract, the RTC and the CA should have applied the rule of in pari delicto, to the effect that the law
should not aid either party to enforce the illegal contract but should leave them where it found them; and that it was
erroneous to accord to the parties relief from their predicament. 11
Ruling
We deny the petition for review, but we delete the grant of moral damages, attorney’s fees and litigation expenses.
148
There is no question that every contractor is prohibited from subcontracting with or assigning to another person any
contract or project that he has with the DPWH unless the DPWH Secretary has approved the subcontracting or
assignment. This is pursuant to Section 6 of Presidential Decree No. 1594, which provides:
Section 6. Assignment and Subcontract. – The contractor shall not assign, transfer, pledge, subcontract or make any
other disposition of the contract or any part or interest therein except with the approval of the Minister of Public
Works, Transportation and Communications, the Minister of Public Highways, or the Minister of Energy, as the case
may be. Approval of the subcontract shall not relieve the main contractor from any liability or obligation under his
contract with the Government nor shall it create any contractual relation between the subcontractor and the
Government.
Gonzalo, who was the sole contractor of the project in question, subcontracted the implementation of the project to
Tarnate in violation of the statutory prohibition. Their subcontract was illegal, therefore, because it did not bear the
approval of the DPWH Secretary. Necessarily, the deed of assignment was also illegal, because it sprung from the
subcontract. As aptly observed by the CA:
x x x. The intention of the parties in executing the Deed of Assignment was merely to cover up the illegality of the
sub-contract agreement. They knew for a fact that the DPWH will not allow plaintiff-appellee to claim in his own name
under the Sub-Contract Agreement.
Obviously, without the Sub-Contract Agreement there will be no Deed of Assignment to speak of. The illegality of the
Sub-Contract Agreement necessarily affects the Deed of Assignment because the rule is that an illegal agreement
cannot give birth to a valid contract. To rule otherwise is to sanction the act of entering into transaction the object of
which is expressly prohibited by law and thereafter execute an apparently valid contract to subterfuge the illegality.
The legal proscription in such an instance will be easily rendered nugatory and meaningless to the prejudice of the
general public.12
Under Article 1409 (1) of the Civil Code, a contract whose cause, object or purpose is contrary to law is a void or
inexistent contract. As such, a void contract cannot produce a valid one. 13 To the same effect is Article 1422 of the
Civil Code, which declares that "a contract, which is the direct result of a previous illegal contract, is also void and
inexistent."
We do not concur with the CA’s finding that the guilt of Tarnate for violation of Section 6 of Presidential Decree No.
1594 was lesser than that of Gonzalo, for, as the CA itself observed, Tarnate had voluntarily entered into the
agreements with Gonzalo.14 Tarnate also admitted that he did not participate in the bidding for the project because he
knew that he was not authorized to contract with the DPWH. 15 Given that Tarnate was a businessman who had
represented himself in the subcontract as "being financially and organizationally sound and established, with the
necessary personnel and equipment for the performance of the project,"16 he justifiably presumed to be aware of the
illegality of his agreements with Gonzalo. For these reasons, Tarnate was not less guilty than Gonzalo.
According to Article 1412 (1) of the Civil Code, the guilty parties to an illegal contract cannot recover from one another
and are not entitled to an affirmative relief because they are in pari delicto or in equal fault. The doctrine of in pari
delicto is a universal doctrine that holds that no action arises, in equity or at law, from an illegal contract; no suit can
be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or the money
agreed to be paid, or damages for its violation; and where the parties are in pari delicto, no affirmative relief of any
kind will be given to one against the other.17
Nonetheless, the application of the doctrine of in pari delicto is not always rigid.1âwphi1 An accepted exception arises
when its application contravenes well-established public policy.18 In this jurisdiction, public policy has been defined as
"that principle of the law which holds that no subject or citizen can lawfully do that which has a tendency to be injurious
to the public or against the public good."19
Unjust enrichment exists, according to Hulst v. PR Builders, Inc., 20 "when a person unjustly retains a benefit at the loss
of another, or when a person retains money or property of another against the fundamental principles of justice, equity
and good conscience." The prevention of unjust enrichment is a recognized public policy of the State, for Article 22 of
the Civil Code explicitly provides that "[e]very person who through an act of performance by another, or any other
means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall
return the same to him." It is well to note that Article 22 "is part of the chapter of the Civil Code on Human Relations,
the provisions of which were formulated as basic principles to be observed for the rightful relationship between human
beings and for the stability of the social order; designed to indicate certain norms that spring from the fountain of good
conscience; guides for human conduct that should run as golden threads through society to the end that law may
approach its supreme ideal which is the sway and dominance of justice."21
[ G.R. No. 238462, May 12, 2021 ]
ELENA R. QUIAMBAO, PETITIONER, VS. CHINA BANKING CORPORATION, RESPONDENT.
A contract of adhesion is a veritable trap for the weaker party whom the courts are bound to protect from abuse and
imposition. Hence, in case of doubt which will cause a great imbalance of rights, the contract shall be construed strictly
against the party who prepared it.1 This resolves the Petition for Review on Certiorari2 under Rule 45 of the Rules of
Court assailing the Court of Appeals' (CA) Decision3 dated September 11, 2017 and Resolution4 dated March 21, 2018
in CA-G.R. CV No. 97888.

There is no question that Tarnate provided the equipment, labor and materials for the project in compliance with his
obligations under the subcontract and the deed of assignment; and that it was Gonzalo as the contractor who received
the payment for his contract with the DPWH as well as the 10% retention fee that should have been paid to Tarnate
pursuant to the deed of assignment.22 Considering that Gonzalo refused despite demands to deliver to Tarnate the
stipulated 10% retention fee that would have compensated the latter for the use of his equipment in the project,
Gonzalo would be unjustly enriched at the expense of Tarnate if the latter was to be barred from recovering because
of the rigid application of the doctrine of in pari delicto. The prevention of unjust enrichment called for the exception
to apply in Tarnate’s favor. Consequently, the RTC and the CA properly adjudged Gonzalo liable to pay Tarnate the
equivalent amount of the 10% retention fee (i.e., ₱233,526.13).
ANTECEDENTS
On April 3, 1990, Elena R. Quiambao (Elena) borrowed P1,400,000.005 from China Banking Corporation to increase
the working capital of her general merchandising business.6 On even date, Elena and her common-law husband and
business partner Daniel S. Sy (Daniel) executed a Real Estate Mortgage7 (REM) over a parcel of land registered under
Transfer Certificate of Title (TCT) No. 227449-PR21432 as security for the loan.8 Later, the REM was amended several
times increasing the loan to P1,770,000.00 on April 29, 1993,9 P2,600,000.00 on April 28, 1995;10 and P4,000,000.00
on April 29, 1997.11 The amendments contained a "blanket mortgage clause" stating that the REM would secure the
payment of obligations already incurred or which may be subsequently incurred.

Gonzalo sought to justify his refusal to turn over the ₱233,526.13 to Tarnate by insisting that he (Gonzalo) had a debt On March 1, 2005, China Banking Corporation filed a petition for foreclosure of the REM with the Regional Trial Court
of ₱200,000.00 to Congressman Victor Dominguez; that his payment of the 10% retention fee to Tarnate was (RTC) alleging that Elena and Daniel obtained P5,000,000.00 succeeding loan accommodations covered by eight
conditioned on Tarnate paying that debt to Congressman Dominguez; and that he refused to give the 10% retention promissory notes (PNs),12 thus:
fee to Tarnate because Tarnate did not pay to Congressman Dominguez. 23 His justification was unpersuasive, however,
because, firstly, Gonzalo presented no proof of the debt to Congressman Dominguez; secondly, he did not competently Promissory Note No. Dated of Description
Execution
establish the agreement on the condition that supposedly bound Tarnate to pay to Congressman Dominguez;24 and,
thirdly, burdening Tarnate with Gonzalo’s personal debt to Congressman Dominguez to be paid first by Tarnate would 1. PN No. 001071438686 for March 19, Renewal of the initial PN No. T-134040-6 dated June 16, 2000, for
constitute another case of unjust enrichment. P500,000.00 2004 P500,000.00

2. PN No. 001071438693 for March 19, Renewal of the initial PN No. S-136992-6 dated July 24, 2001, for
The Court regards the grant of moral damages, attorney’s fees and litigation expenses to Tarnate to be inappropriate. P1,000,000.00 2004 P1,000,000.00
We have ruled that no damages may be recovered under a void contract, which, being nonexistent, produces no
3. PN No. 001071438723 for March 19, Renewal of the initial PN No. S-137764-4 dated October 30, 2001, for
juridical tie between the parties involved. 25 It is notable, too, that the RTC and the CA did not spell out the sufficient
P500,000.00 2004 P500,000.00
factual and legal justifications for such damages to be granted.
4. PN No. 001071438730 for March 19, Renewal of the initial PN No. S-138142-1 dated December 20, 2001,
P1,000,000.00 2004 for P1,000,000.00
Lastly, the letter and spirit of Article 22 of the Civil Code command Gonzalo to make a full reparation or compensation
to Tarnate. The illegality of their contract should not be allowed to deprive Tarnate from being fully compensated 5. PN No. 001071445042 for June 16, Renewal of the initial PN No. S-141161-2 dated March 12, 2003, for
through the imposition of legal interest. Towards that end, interest of 6% per annum reckoned from September 13, P400,000.00 2004 P400,000.00
1999, the time of the judicial demand by Tarnate, is imposed on the amount of ₱233,526.13. Not to afford this relief 6. PN No. 001071445035 for June 16, Renewal of the initial PN No. S-137041-4 dated July 30, 2001, for
will make a travesty of the justice to which Tarnate was entitled for having suffered too long from Gonzalo’s unjust P600.000.00 2004 P600,000.00
enrichment.
7. PN No. 001071445011 for June 16, Renewal of the initial PN No. S-137526-6 dated September 28, 2001,
P500,000.00 2004 for P500,000.00
WHEREFORE, we AFFIRM the decision promulgated on February 18, 2003, but DELETE the awards of moral damages,
8. PN No. 001071445004 for June 16, Renewal of the initial PN No. S-136971-1 dated July 20, 2001, for
attorney’s fees and litigation expenses; IMPOSE legal interest of 6% per annum on the principal oL₱233,526.13
P500,000.00 2004 P500,000.00
reckoned from September 13, 1999; and DIRECT the petitioner to pay the costs of suit.

In due course, the RTC issued a notice of extra-judicial sale scheduled on May 5, 2005.13 The notice was published in
a newspaper of general circulation14 and posted in public places. At the public auction sale, the mortgaged property
was sold to China Banking Corporation for the amount of P5,254,708.00. On May 6, 2005, the Ce1iificate of Sale was

149
issued to China Banking Corporation.15 However, Elena and Daniel failed to redeem the property. Thus, the title was
consolidated in the name of China Banking Corporation.16 Accordingly, TCT No. 227449-PR 2143217 in the name of
Elena was cancelled and TCT No. N-30738018 was issued in the name of China Banking Corporation.
Thereafter, Elena filed against China Banking Corporation a petition to annul the mortgage and the extra-judicial
foreclosure proceedings with prayer for injunctive relief before the RTC.19 Elena argued that the REM only covered the
loan secured on April 3, 1990, and its amendments but not her succeeding loans for P5,000,000.00.20 In contrast,
China Banking Corporation maintained that Elena's loan on April 3, 1990, was extended and renewed up to March
2004. Yet, Elena merely paid the interests but not the principal.21
At the trial, Elena testified that she was made to sign blank documents and blank PNs when she transacted with China
Banking Corporation. The last mortgage document that she signed was on April 29, 1997. On the other hand, China
Banking Corporation's loan assistant testified that PN No. 001071438693 executed on March 19, 2004 was not subject
of the REM.22
On February 22, 2011, the RTC granted the petition and ruled that the eight PNs executed from March 19, 2004 to
June 16, 2004 cannot be the basis for the foreclosure proceedings since one PN was clean or unsecured,23 thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the petitioner and against the
respondents [sic]. The Amendment to the Real Estate Mortgage dated April 29, 1997 is declared null and void and
the Extra-judicial foreclosure sale executed on May 5, 2005 is likewise declared null and void.
On September 11, 2017, the CA reversed the RTC's findings and held that the REM was intended to secure all
succeeding obligations of Elena in view of the blanket mortgage clause.25 The CA noted that Elena and Daniel were
capable of understanding the legal effects of contracts given their business experience, thus:
[Elena] and [Daniel's] lengthy actual experience and dealings in running their complex money[-]changing business
and various other businesses, more than equipped them with the business acumen that earned them millions. [Elena]
and [Daniel] have long been engaged in business even prior to 1990. The latter affim1ed that he managed their
general merchandising business continuously up to the time he testified on June 28, 2006. The contracting parties,
being of age and businessmen of experience, were presumed to have acted with due care and to have signed the
contracts with full knowledge of their import.26 (Citation omitted.)
Hence, this recourse. Elena maintains that she and Daniel signed the eight PNs in blank or without the material
particulars. They thought that these are character loans without any renewal of mortgage. Lastly, Elena only finished
high school while Daniel reached only grade two. They both have limited educational attainment which prevented them
from discerning the effects of the transactions.27 Meantime, China Banking Corporation advised Elena to remove her
personal belongings from the foreclosed property, otherwise it will be forced to dispose them. Aggrieved, Elena moved
to hold in abeyance the hauling off, and disposal of her personal properties.
RULING
The petition is meritorious.
Elena raises a question regarding the appreciation of evidence which is one of fact, and is beyond the ambit of this
Court's jurisdiction in a petition for review on certiorari. It is not this Court's task to go over the proofs presented below
to ascertain if they were weighed correctly.28 However, this rule of limited jurisdiction admits of exceptions and one
of them is when the factual findings of the CA and the RTC are contradictory.29 In this case, the RTC concluded that
the eight promissory notes from March 19, 2004 to June 16, 2004 cannot be the bases for foreclosure proceedings
while the CA ruled that the REM validly secured these succeeding loan obligations. Considering these conflicting findings
warranting the examination of evidence, this Court will entertain the factual issues raised in the petition.
150
In a contract of adhesion, one imposes a ready-made contract to the other whose sole participation is either to accept
or reject the agreement.30 The parties do not bargain on equal footing in the execution of this kind of contract given
that the debtor is limited "to take it or leave it" option31 and there is no room for negotiation.32 However, such contract
is not entirely prohibited. The one adhering is free to give his consent inasmuch as he is also free to reject it
completely.33 Inarguably, the amendments to the REM are contracts of adhesion. It was China Banking Corporation
which drafted and prepared the standard forms on which Elena and Daniel merely affixed their signatures. At the trial,
it was established that Elena and Daniel signed the amendments to the REM in blank. They presented pro forma blank
documents that China Banking Corporation is giving to all borrowers for signature. Corollarily, any ambiguity in the
provisions of these documents must be interpreted against China Banking Corporation.
Notably, there is a controversy on whether the "blanket mortgage clause" in the latest amendment to the REM dated
April 29, 1997 covers the P5,000,000.00 succeeding loans under the eight PNs for which the mortgage was foreclosed.
We stress that a "blanket mortgage clause" or "dragnet clause" subsumes all debts of past or future origins34 and
makes additional funds available to a borrower without the need to execute separate security documents, thus, saving
time, costs, and other resources.35 Jurisprudence recognizes the validity of this clause36 but its terms must still be
judiciously examined.37
In Paradigm Development Corporation of the Phils. v. Bank of the Philippine Islands,38 this Court held that while a
REM may exceptionally secure future loans or advancements, these future debts must be specifically described or must
come fairly within the terms of the mortgage contract. A mortgage containing a dragnet clause will not be extended to
cover future advances, unless the document evidencing the subsequent advance refers to the mortgage as providing
security therefor, or unless there are clear and supportive evidence to the contrary. In that case, the foreclosure
proceedings were declared void because there is uncertainty on whether the promissory notes were secured or not. It
was not shown that the PNs are within the terms of the limited liability of the debtor, thus:
Nonetheless, the parties do not dispute that what the REMs secured were only Sengkon's availments under the Credit
Line and not all of Sengkon's availments under other sub-facilities which are also secured by other collaterals. Since
the liability of PDCP's properties was not unqualified, the PNs, used as basis of the Petition for Extrajudicial Foreclosure
of Mortgage should sufficiently indicate that it is within the terms of PDCP's limited liability. In this case, the PNs
failed to make any reference to PDCP's availments, if any, under its Credit Line. In fact, it did not even mention
Sengkon's securities under the Credit Line. Notably, the Disclosure Statements, which were "certified correct" by
FEBTC's authorized representative, Ma. Luisa C. Ellescas, and which accompanied the PNs, failed to disclose whether
the loan secured thereby was actually secured or not.39 (Emphases supplied and citation omitted.)
Here, the eight PNs likewise failed to allude to Elena and Daniel's liability under the latest amendment to the REM dated
April 29, 1997. The PNs do not even make any reference to the REM as a security. Further, China Banking Corporation
did not adduce any evidence proving that the REM and its amendments secured these obligations. Worse, China Banking
Corporation's loan assistant categorically testified that one of the PNs was not subject of the REM. Hence, the doubt
on whether the rest of the PNs are secured or not must be construed against China Banking Corporation or the party
who prepared the contracts. The bank could have avoided the ambiguity had it exercised a little more care in drafting
the instruments. Consequently, the latest amendment to the REM cannot be interpreted to cover the P5,000,000.00
succeeding loans under the eight PNs for which the mortgage was foreclosed. As such, the foreclosure proceedings are
void. The bank cannot validly foreclose a mortgage based on non-payment of unsecured PNs.
Moreover, it is undisputed that Elena only finished high school while Daniel reached only grade two. They cannot be
expected to understand all the technicalities and foresee the legal implications of the transactions despite their business
experience. Differently stated, Elena and Daniel lacked the adeptness to fully comprehend the effects of the
amendments to the REM. On the other hand, China Banking Corporation merely concluded that Elena and Daniel freely,
voluntarily, and willingly entered into the amendments to the REM but did not prove, let alone allege, that it made an
effort to explain to them and ensure that they indeed understand the stipulations in the contract. Hence, there is reason
for the court to step in and protect the interest of the weaker party, thus:
 The peculiar nature of such contracts behooves the Court to closely scrutinize the factual milieu to which the
provisions are intended to apply.ℒαwρhi৷ Thus, just as consistently and unhesitatingly, but without categorically
invalidating such contracts, the Court has construed obscurities and ambiguities in the restrictive provisions of
contracts of adhesion strictly albeit not unreasonably against the drafter thereof when justified in light of the operative
facts and surrounding circumstances.40 (Emphases supplied and citation omitted.)
We reiterate that the validity or enforceability of the impugned contracts will have to be determined by the peculiar
circumstances obtaining in each case and the situation of the parties concerned.41 The stringent treatment towards a
contract of adhesion is pursuant to the mandate that in all contractual, property, or other relations, when one of the
parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender age
or other handicap, the courts must be vigilant for his protection.42
Lastly, there is no need to rule on Elena's motion to hold in abeyance the removal of her personal belongings from the
foreclosed property considering the favorable decision on the merits declaring void the amendments to the REM and
the foreclosure proceedings.
FOR THESE REASONS, the petition is GRANTED. The Court of Appeals' Decision dated September 11, 2017 and
Resolution43 dated March 21, 2018 in CA-G.R. CV No. 97888 are REVERSED. The Regional Trial Court's Decision dated
February 22, 2011 is REINSTATED.
151
G.R. No. L-48889 May 11, 1989
DEVELOPMENT BANK OF THE PHILIPPINES (DBP), petitioner,
vs.
THE HONORABLE MIDPAINTAO L. ADIL, Judge of the Second Branch of the Court of First Instance of Iloilo
and SPOUSES PATRICIO CONFESOR and JOVITA VILLAFUERTE, respondents.
The issue posed in this petition for review on certiorari is the validity of a promissory note which was executed in
consideration of a previous promissory note the enforcement of which had been barred by prescription.
On February 10, 1940 spouses Patricio Confesor and Jovita Villafuerte obtained an agricultural loan from the Agricultural
and Industrial Bank (AIB), now the Development of the Philippines (DBP), in the sum of P2,000.00, Philippine Currency,
as evidenced by a promissory note of said date whereby they bound themselves jointly and severally to pay the account
in ten (10) equal yearly amortizations. As the obligation remained outstanding and unpaid even after the lapse of the
aforesaid ten-year period, Confesor, who was by then a member of the Congress of the Philippines, executed a second
promissory note on April 11, 1961 expressly acknowledging said loan and promising to pay the same on or before June
15, 1961. The new promissory note reads as follows —
I hereby promise to pay the amount covered by my promissory note on or before June 15, 1961. Upon my failure to
do so, I hereby agree to the foreclosure of my mortgage. It is understood that if I can secure a certificate of
indebtedness from the government of my back pay I will be allowed to pay the amount out of it.
Said spouses not having paid the obligation on the specified date, the DBP filed a complaint dated September 11, 1970
in the City Court of Iloilo City against the spouses for the payment of the loan.
After trial on the merits a decision was rendered by the inferior court on December 27, 1976, the dispositive part of
which reads as follows:
WHEREFORE, premises considered, this Court renders judgment, ordering the defendants Patricio Confesor and Jovita
Villafuerte Confesor to pay the plaintiff Development Bank of the Philippines, jointly and severally, (a) the sum of
P5,760.96 plus additional daily interest of P l.04 from September 17, 1970, the date Complaint was filed, until said
amount is paid; (b) the sum of P576.00 equivalent to ten (10%) of the total claim by way of attorney's fees and
incidental expenses plus interest at the legal rate as of September 17,1970, until fully paid; and (c) the costs of the
suit.
Defendants-spouses appealed therefrom to the Court of First Instance of Iloilo wherein in due course a decision was
rendered on April 28, 1978 reversing the appealed decision and dismissing the complaint and counter-claim with costs
against the plaintiff.
A motion for reconsideration of said decision filed by plaintiff was denied in an order of August 10, 1978. Hence this
petition wherein petitioner alleges that the decision of respondent judge is contrary to law and runs counter to decisions
of this Court when respondent judge (a) refused to recognize the law that the right to prescription may be renounced
or waived; and (b) that in signing the second promissory note respondent Patricio Confesor can bind the conjugal
partnership; or otherwise said respondent became liable in his personal capacity. The petition is impressed with merit.
The right to prescription may be waived or renounced. Article 1112 of Civil Code provides:
Art. 1112. Persons with capacity to alienate property may renounce prescription already obtained, but not the right
to prescribe in the future.
Prescription is deemed to have been tacitly renounced when the renunciation results from acts which imply the
abandonment of the right acquired.
There is no doubt that prescription has set in as to the first promissory note of February 10, 1940. However, when
respondent Confesor executed the second promissory note on April 11, 1961 whereby he promised to pay the amount
covered by the previous promissory note on or before June 15, 1961, and upon failure to do so, agreed to the
foreclosure of the mortgage, said respondent thereby effectively and expressly renounced and waived his right to the
prescription of the action covering the first promissory note.
This Court had ruled in a similar case that –
... when a debt is already barred by prescription, it cannot be enforced by the creditor. But a new contract recognizing
and assuming the prescribed debt would be valid and enforceable ... . 1
Thus, it has been held —
Where, therefore, a party acknowledges the correctness of a debt and promises to pay it after the same has prescribed
and with full knowledge of the prescription he thereby waives the benefit of prescription. 2
This is not a mere case of acknowledgment of a debt that has prescribed but a new promise to pay the debt. The
consideration of the new promissory note is the pre-existing obligation under the first promissory note. The statutory
limitation bars the remedy but does not discharge the debt.
A new express promise to pay a debt barred ... will take the case from the operation of the statute of limitations as
this proceeds upon the ground that as a statutory limitation merely bars the remedy and does not discharge the
debt, there is something more than a mere moral obligation to support a promise, to wit a – pre-existing debt which
is a sufficient consideration for the new the new promise; upon this sufficient consideration constitutes, in fact, a new
cause of action. 3
... It is this new promise, either made in express terms or deduced from an acknowledgement as a legal implication,
which is to be regarded as reanimating the old promise, or as imparting vitality to the remedy (which by lapse of
time had become extinct) and thus enabling the creditor to recover upon his original contract. 4
However, the court a quo held that in signing the promissory note alone, respondent Confesor cannot thereby bind his
wife, respondent Jovita Villafuerte, citing Article 166 of the New Civil Code which provides:
Art. 166. Unless the wife has been declared a non compos mentis or a spend thrift, or is under civil interdiction or is
confined in a leprosarium, the husband cannot alienate or encumber any real property of the conjugal partnership
without, the wife's consent. If she ay compel her to refuses unreasonably to give her consent, the court m grant the
same.
We disagree. Under Article 165 of the Civil Code, the husband is the administrator of the conjugal partnership. As such
administrator, all debts and obligations contracted by the husband for the benefit of the conjugal partnership, are
chargeable to the conjugal partnership. 5 No doubt, in this case, respondent Confesor signed the second promissory
note for the benefit of the conjugal partnership. Hence the conjugal partnership is liable for this obligation.
WHEREFORE, the decision subject of the petition is reversed and set aside and another decision is hereby rendered
reinstating the decision of the City Court of Iloilo City of December 27, 1976, without pronouncement as to costs in
this instance. This decision is immediately executory and no motion for extension of time to file motion for
reconsideration shall be granted.
152
G.R. No. 123817 December 17, 1999
IBAAN RURAL BANK INC., petitioner,
vs.
THE COURT OF APPEALS and MR. and MRS. RAMON TARNATE, respondents.
This petition for review under Rule 45 of the Rules of Court seeks to set aside the decision of the Court of Appeals in
CA-G.R. CV No. 32984 affirming with modification the decision of the Regional Trial Court of Batangas, Branch 2, in
Civil Case No. 534, as well as the resolution of the Court of Appeals denying petitioner's motion for reconsideration.
Spouses Cesar and Leonila Reyes were the owners of three (3) lots covered by Transfer Certificate of Title (TCT) Nos.
33206, 33207 and 33208 of the Register of Deeds of Lipa City. On March 21, 1976, the spouses mortgaged these lots
to Ibaan Rural Bank, Inc. [herein petitioner]. On June 11, 1976, with the knowledge and consent of the petitioner, the
spouses as sellers, and Mr. and Mrs. Ramon Tarnate [herein private respondents] as buyers, entered into a Deed of
Absolute Sale with Assumption of Mortgage of the lots in question. Private respondents failed to pay the loan and the
bank extra-judicially foreclosed on the mortgaged lots. The Provincial Sheriff conducted a public auction of the lots and
awarded the lots to the bank, the sole bidder. On December 13, 1978, the Provincial Sheriff issued a Certificate of Sale
which was registered on October 16, 1979. The certificate stated that the redemption period expires two (2) years
from the registration of the sale. No notice of the extrajudicial foreclosure was given to the private respondents. On
September 23, 1981, private respondents offered to redeem the foreclosed lots and tendered the redemption amount
of P77,737.45. However, petitioner Bank refused the redemption on the ground that it had consolidated its titles over
the lots. The Provincial Sheriff also denied the redemption on the ground that private respondents did not appear on
the title to be the owners of the lots.
Private respondents filed a complaint to compel the bank to allow their redemption of the foreclosed lots. They alleged
that the extra-judicial foreclosure was null and void for lack of valid notice and demand upon them. They further argued
that they were entitled to redeem the foreclosed lots because they offered to redeem and tendered the redemption
price before October 16, 1981, the deadline of the 2-year redemption period.
The bank opposed the redemption, contending that the private respondents had no right to redeem the lots because
they were not the real parties in interest; that at the time they offered to redeem on September 23, 1981, the right to
redeem had prescribed, as more than one year had elapsed from the registration of the Certificate of Sale on October
16, 1979; that there was no need of personal notice to them because under Section 3 of Act 3135, only the posting of
notice of sale at three public places of the municipality where the properties are located was required. 1
After trial on the merits, the lower court ruled in favor of herein private respondents and against the petitioner, thus:
WHEREFORE, in view of the foregoing, the Court renders judgment in favor of the plaintiffs and against the
defendants, to wit:
(a) Ordering the defendant Ibaan Rural Bank Inc., and Provincial Sheriff of Batangas for the redemption of the
foreclosed properties covered by Transfer Certificate of Title Nos. T-33206, T-33207 and T-33208 of the Registry
of Deeds, Lipa City by the plaintiffs by paying the mortgaged obligation.
(b) Ordering the Provincial Sheriff of Batangas to cancel the Transfer Certificate of Titles issued to defendant Ibaan
Rural Bank, Inc. and its successors-in-interest and to issue the corresponding Transfer of Certificate of Titles to
plaintiffs upon payment of the required legal fees.
(c) Ordering the defendant Ibaan Rural Bank, Inc., to pay plaintiffs moral damages in the amount of P200,000.00,
and attorney's fees in the sum of P20,000.00.
All other claims not having been duly proved are ordered DISMISSED.
Without pronouncement as to costs.
On appeal, the Court of Appeals affirmed with modification the decision of the lower court. The dispositive portion of
the CA decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED with the following modifications:
1. The register of Deeds of Lipa City is hereby ordered to cancel the Certificate of Titles issued to defendant Ibaan
Rural Bank, Inc. and its successor-in-interest and to issue the corresponding Transfer Certificate of Title to plaintiffs-
appellees upon proper redemption of the properties and payment of the required legal fees.
2. Defendant Ibaan Rural bank, is hereby ordered to pay to plaintiffs the amount of P15,000.00 as attorney's fees.
3. The moral damages awarded in favor of plaintiffs is hereby ordered deleted.
A timely Motion for Reconsideration was filed by the petitioner but the same was denied in a Resolution dated February
14, 1996. Hence, this petition.
Petitioner assigns the following errors:
1. THE RESPONDENT COURT ERRED AND, ACCORDINGLY, THE PETITIONER IS ENTITLED TO A REVIEW OF ITS
DECISION, WHEN IT SUSTAINED AVAILABILITY OF REDEMPTION DESPITE THE LAPSE OF ONE YEAR FROM DATE OF
REGISTRATION OF THE CERTIFICATE OF SALE.
2. THE RESPONDENT COURT ERRED AND, ACCORDINGLY, THE PETITIONER IS ENTITLED TO A REVIEW OF ITS
DECISION, WHEN THE RESPONDENT COURT ALLOWED RECOVERY OF ATTORNEY'S FEES SIMPLY BECAUSE THE
PETITIONER DID NOT ALLOW THE PRIVATE RESPONDENTS TO EXERCISE BELATEDLY REDEMPTION OF THE
FORECLOSED PROPERTY. 4
Additionally, the rule on redemption is liberally interpreted in favor of the original owner of a property. The fact alone
that he is allowed the right to redeem clearly demonstrates the solicitousness of the law in giving him another
opportunity, should his fortune improve, to recover his lost property. 9
Lastly, petitioner is a banking institution on whom the public expects diligence, meticulousness and mastery of its
transactions. Had petitioner diligently reviewed the Certificate of Sale it could have easily discovered that the period
was extended one year beyond the usual period for redemption. Banks, being greatly affected with public interest, are
expected to exercise a degree of diligence in the handling of its affairs higher than that expected of an ordinary business
firm. 10
On the second issue, the award of attorney's fees must be disallowed for lack of legal basis. The fact that private
respondents were compelled to litigate and incur expenses to protect and enforce their claim does not justify the award
of attorney's fees. The general rule is that attorney's fees cannot be recovered as part of damages because of the
public policy that no premium should be placed on the right to litigate. 11 The award of attorney's fees must be deleted
where the award of moral and exemplary damages are eliminated. 12
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 32984 is AFFIRMED, with the MODIFICATION that
the award of attorney's fees is deleted. No pronouncement as to costs.

Essentially, two issues are raised for resolution. What was the period of redemption: two years as unilaterally fixed by
the sheriff in the contract, or one year as fixed by law? May respondent court properly award attorney's fees solely on
the basis of the refusal of the bank to allow redemption?

We now resolve these issues.

When petitioner received a copy of the Certificate of Sale registered in the Office of the Register of Deeds of Lipa City,
it had actual and constructive knowledge of the certificate and its contents. 5 For two years, it did not object to the
two-year redemption period provided in the certificate. Thus, it could be said that petitioner consented to the two-year
redemption period specially since it had time to object and did not. When circumstances imply a duty to speak on the
part of the person for whom an obligation is proposed, his silence can be construed as consent. 6 By its silence and
inaction, petitioner misled private respondents to believe that they had two years within which to redeem the mortgage.
After the lapse of two years, petitioner is estopped from asserting that the period for redemption was only one year
and that the period had already lapsed. Estoppel in pais arises when one, by his acts, representations or admissions,
or by his own silence when he ought to speak out, intentionally or through culpable negligence, induces another to
believe certain facts to exist and such other rightfully relies and acts on such belief, so that he will be prejudiced if the
former is permitted to deny the existence of such facts. 7

In affirming the decision of the trial court, the Court of Appeals relied on Lazo vs. Republic Surety and Insurance Co.,
Inc., 8 where the court held that the one year period of redemption provided in Act No. 3135 is only directory and can
be extended by agreement of the parties. True, but it bears noting that in Lazo the parties voluntarily agreed to extend
the redemption period. Thus, the concept of legal redemption was converted by the parties in Lazo into conventional
redemption. This is not so in the instant case. There was no voluntary agreement. In fact, the sheriff unilaterally and
arbitrarily extended the period of redemption to two (2) years in the Certificate of Sale. The parties were not even
privy to the extension made by the sheriff. Nonetheless, as above discussed, the bank can not after the lapse of two
years insist that the redemption period was one year only.

153
G.R. No. 116682 January 2, 1997
ROBLETT INDUSTRIAL CONSTRUCTION CORPORATION, petitioner,
vs.
COURT OF APPEALS and CONTRACTORS EQUIPMENT CORPORATION, respondents.
On 23 September 1986 respondent Contractors Equipment Corporation (CEC) instituted an action for a sum of money
against petitioner Roblett Industrial Construction Corporation (RICC) before the Regional Trial Court of Makati alleging
that in 1985 it leased to the latter various construction equipment which it used in its projects. As a result RICC incurred
unpaid accounts amounting to P342,909.38.
On 19 December 1985 RICC through its Assistant Vice President for Finance Candelario S. Aller Jr. entered into an
Agreement 1 with CEC where it confirmed petitioner's account. As an off-setting arrangement respondent received from
petitioner construction materials worth P115,000.00 thus reducing petitioner's balance to P227,909.38.
A day before the execution of their Agreement, or on 18 December 1985, RICC paid CEC P10,000.00 in postdated
checks which when deposited were dishonored. As a consequence the latter debited the amount to petitioner's account
of P227,909.38 thus increasing its balance to P237,909.38.
On 24 July 1986 Mariano R. Manaligod Jr., General Manager of CEC, sent a letter of demand to petitioner through its
Vice President for Finance regarding the latter's overdue account of P237,909.38 and sought settlement thereof on or
before 31 July 1986. In reply, petitioner requested for thirty (30) days to have enough time to look for funds to
substantially settle its account.
Traversing the allegations of respondent, Candelario S. Aller Jr. declared that he signed the Agreement with the real
intention of having proof of payment. In fact Baltazar Banlot, Vice President for Finance of petitioner, claimed that after
deliberation and audit it appeared that petitioner overpaid respondent by P12,000.00 on the basis of the latter's
Equipment Daily Time Reports for 2 May to 14 June 1985 which reflected a total obligation of only P103,000.00. He
claimed however that the Agreement was not approved by the Board and that he did not authorize Aller Jr. to sign
thereon.
On rebuttal, Manaligod Jr. declared that petitioner had received a statement of account covering the period from 28
March to 12 July 1985 in the amount of P376,350.18 which it never questioned. From this amount P3,440.80, based
on respondent's account with petitioner and P30,000.00, representing payments made by the latter, were deducted
thus leaving a balance of P342,909.38 as mentioned in the Agreement.
On 19 December 1990 the trial court rendered judgment ordering petitioner to pay respondent: (a) P237,909.38 plus
legal interest from 31 July 1986 until full payment; (b) P2,000.00 as litigation expenses; (c) 20% of the sum due and
payable as attorney's fees and, (d) cost of suit. 2 Its ruling is anchored on its finding that —
1. The Court finds the Agreement (EXHIBIT "A," EXHIBIT "I") between the parties valid and that it reflects the true
intention of the parties. It must be emphasized that the same agreement was used by plaintiff as the basis for
claiming defendant's obligation of P237,909.38 and also used by defendant as the same basis for its alleged payment
in full of its obligation to plaintiff. But while plaintiff treats the entire agreement as valid, defendant wants the court
to treat that portion which treats of the offsetting of P115,000.00 as valid, whereas it considers the other terms and
conditions as "onerous, illegal and want of prior consent and Board approval." This Court cannot agree to defendant's
contention. It must be stressed that defendant's answer was not made under oath, and therefore, the genuineness
and due execution of the agreement (EXHIBIT "A," EXHIBIT "I") which was the basis for plaintiff's claim is deemed
154
admitted (Section 8, Rule 8, Rules of Court). Such admission, under the principle of estoppel, is rendered conclusive
upon defendant and cannot be denied or disproved as against plaintiff (Art. 1431, Civil Code). Either the agreement
(EXHIBIT "A," EXHIBIT "I") is valid or void. It must be treated as a whole and not to be divided into parts and consider
only those provisions which favor one party (in this case the defendant). Contracts must bind both contracting parties,
its validity or compliance cannot be left to the will of one of them (Art. 1308, New Civil Code).
Defendant further contends that the agreement did not reflect the real intention of the parties. However, when
plaintiff wrote defendant in its letter dated July 24, 1986 (EXHIBIT "F") that it be given thirty (30) days to substantially
settle the same, clearly, at this point in time, defendant did not question its account with plaintiff, nor did it question
the validity nor the contents of the Agreement (EXHIBIT "A," EXHIBIT "I"). This Court is not convinced that the
Agreement (EXHIBIT "A," EXHIBIT "I") does not reflect the true intention of the parties. On the contrary, it does.
2. To the issue that defendant has fully paid its obligation to plaintiff by way of offset for the P115,000.00 construction
materials received by plaintiff, this Court finds the contention of defendant without basis in fact. Defendant's
presentation of evidence (EXHIBITS "2," "2-A" up to "2-Z") merely consists of daily time reports of plaintiff consisting
of 191 hours only, the period May 2, 1985 to June 14, 1985 and does not reflect the entire period of the lease
agreement (EXHIBIT "L"), while plaintiff accurately reflects in Exhibits "I," "J, "K" and its submarkings the entire
period, covered by the lease agreement (EXHIBIT "L"), which is from March 28, 1985 to July 12, 1985 and correctly
states the amount due plaintiff from defendant in the amount of P376,350.18. 3
On 29 July 1994 respondent Court of Appeals affirmed the decision of the trial court. 4
Petitioner imputes the following errors to respondent court: (1) in not holding that, insofar as it fixed petitioner's alleged
obligation to respondent at P342,909.38, the Agreement is unenforceable for being in the nature of an unauthorized
contract; and, (2) in not holding that petitioner's obligation to respondent had been fully paid and that petitioner even
overpaid respondent by P12,000.00.
As regards the first error, petitioner asserts that the Agreement is unenforceable for having been executed by
Candelario S. Aller Jr. without authority.
Significantly, in the proceedings before respondent Court of Appeals, petitioner assigned a lone error allegedly
committed by the trial court, i.e., full payment, if not overpayment by P12,000.00, of the obligation referred to in the
second issue raised in the petition therein. Quite obviously, having limited itself to that particular issue to the exclusion
of any other, petitioner can no longer be permitted to assail the finding of the trial court on the validity of the
Agreement. 5
As regards the factual issue on the correctness of the amount of petitioner's obligation, or whether it has been fully
paid, petitioner insists that from a perusal of Exhs. "2," "2-A" to "2-Z" all of which refer to respondent's Equipment
Daily Time Reports for 2 May to 14 June 1985, it was established that the equipment leased was actually used for only
191 hours. Multiplying 191 hours by the rental rate of P540.00 per hour will amount to P103,140.00 which is petitioner's
correct rental obligation to respondent. Taking into account the construction materials worth P115,000.00 received by
respondent from petitioner an overpayment of P12,000.00 more or less results. In the absence of any showing that
the trial court failed to appreciate facts and circumstances of weight and substance that would have altered its
conclusion, no compelling reason exists for this Court to impinge upon matters more appropriately within its
province. 6 Consequently, we sustain the finding of the trial court that the evidence relied upon by petitioner is
incomplete as it does not reflect the entire period of the lease agreement which, on the basis of respondent's evidence,
covered the period of 28 March to 12 July 1985.
Furthermore, estoppel in pais arises when one, by his acts, representations or admissions, or by his own silence when G.R. No. 122899 June 8, 2000
he ought to speak out, intentionally or through culpable negligence, induces another to believe certain facts to exist
and such other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to deny METROPOLITAN BANK & TRUST COMPANY, petitioner,
the existence of such facts. 7 This doctrine obtains in the present case. A statement of account for P376,350.18 covering vs.
the period above mentioned was received from respondent by petitioner with nary a protest from the latter. Neither COURT OF APPEALS and G.T.P. DEVELOPMENT CORPORATION, respondents.
did petitioner controvert the demand letter concerning the overdue account of P237,909.38; on the contrary, it asked
for ample time to source funds to substantially settle the account.
This petition for review on certiorari under Rule 45 of the Rules of Court assails (1) the amended decision of public
respondent Court of Appeals 1 dated 03 July 1995 in CA-GR CV No. 33395 affirming the trial court's judgment ordering
WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals dated 29 July 1994 affirming that of herein petitioner Metropolitan Bank and Trust Company (hereafter, METROBANK) to release/cancel the real estate
the Regional Trial Court of Makati dated 19 December 1990 is AFFIRMED. Costs against petitioner. mortgage constituted over the subject property, and (2) the respondent court's resolution dated 04 December 1995
denying petitioner METROBANK's motion for reconsideration.

The subject property is a parcel of land in Diliman, Quezon City consisting of six hundred ninety (690) square meters
originally owned by businessman Tomas Chia under Transfer Certificate of Title No. RT-16753 (106901) of the Registry
of Deeds for Quezon City. Saddled with debts and business reverses, Mr. Chia offered the subject property for sale to
private respondent G.T.P. Development Corporation (hereafter, GTP), with assumption of the mortgage indebtedness
in favor of petitioner METROBANK secured by the subject property.

Pending negotiations for the proposed sale, Atty. Bernardo Atienza, acting in behalf of respondent GTP, went to the
METROBANK branch in Quiapo, Manila sometime in the last week of August 1980 to inquire on Mr. Chia's remaining
balance on the real estate mortgage. METROBANK obliged with a statement of account of Mr. Chia amounting to about
P115,000.00 as of August, 1980.

The deed of sale 2 and the memorandum of agreement 3 between Mr. Chia and respondent GTP were eventually
executed and signed on 04 September 1980 in the office of Atty. Atienza. Twelve (12) days later, or on 16 September
1980, Atty. Atienza went to METROBANK Quiapo Branch and paid one hundred sixteen thousand four hundred sixteen
pesos and seventy-one centavos (P116,416.71), 4 for which METROBANK issued an official receipt acknowledging
payment.

This notwithstanding, petitioner METROBANK refused to release the real estate mortgage on the subject property
despite repeated requests from Atty. Atienza, thus prompting respondent GTP to file on October 17, 1980 an action for
specific performance against petitioner METROBANK and Mr. Chia.

In answer to the complaint, Mr. Chia denied having executed any deed of sale in favor of respondent GTP involving the
subject property. Petitioner for its part justified its non-release of the real estate mortgage (1) upon the advise of Mr.
Chia that he never executed any sales agreement with respondent GTP, and (2) by the fact that there are other loans
incurred by Mr. Chia which are also secured by the subject property.

After trial, judgment was rendered by the regional trial court on 11 December 1990 granting the reliefs prayed for by
respondent GTP as plaintiff, viz:
WHEREFORE, after a careful and thorough study of the record, this Court holds that in view of the facts contained in
the records, judgment is hereby rendered in favor of plaintiff and against defendants, ordering —
1. Defendant Metropolitan Bank & Trust Co. to execute the release or cancellation of the real estate mortgages
executed by the deceased defendant Tomas Chia and his wife, defendant Vicenta Chia, over the property described
in TCT No. 106901 of the registry of deeds for Quezon City;
2. Defendants to surrender or deliver the owner's duplicate copy of said TCT No. 106991; and,
3. Defendants to pay, jointly and severally, the sum of P10,000.00 as and for attorney's fees, plus costs of suit.
The counterclaims set up by both defendants are dismissed.

155
On appeal, respondent Court of Appeals rendered a Decision dated 24 October 1994 6 reversing the trial court's 11
December 1990 judgment, ruling in the main that the one hundred sixteen thousand four hundred sixteen pesos and
seventy-one centavos (P116,416.71) paid by respondent GTP to petitioner METROBANK did not extinguish the real
estate mortgage inasmuch as there are other unliquidated past due loans secured by the subject property.
With this unfavorable turn of events, respondent GTP, on 07 November 1994, 7 filed before respondent Court of Appeals
a "motion for reconsideration with alternative prayer to require METROBANK to furnish appellee (GTP) of the alleged
unpaid balance of Mr. Chia." At the re-scheduled date of oral arguments on 08 March 1995 where METROBANK was
supposed to bring before the respondent Court the current statement of the mortgage debt of Mr. Chia secured by the
deeds of mortgage sought to be released, METROBANK's counsel did not appear; only the lawyers of respondent GTP
and Mr. Chia appeared. Thus, the Court required GTP's counsel to file a memorandum in lieu of oral arguments in
support of its motion for reconsideration. 8 GTP filed its memorandum on March 17, 1995 9 to which a reply
memorandum was filed by METROBANK on April 10, 1995. 10
On 03 July 1995, 11 the now assailed amended decision was rendered reconsidering the original 24 October 1994
Decision and thus affirming the 11 December 1990 judgment of the regional trial court. Respondent Court of Appeals
took a second hard look at the evidence on hand and seriously considered METROBANK's refusal to specify any unpaid
debt secured by the subject property, in concluding anew that "the present case for specific performance is well-
grounded, absent indubitable showing that the aforesaid amount of P116,416.71 paid by appellee on September 16,
1980 did not suffice to pay in full the mortgage debt assumed under the Deed of Absolute Sale, with assumption of
mortgage, it inked with the late Tomas Chia. There is therefore merit in its motion for reconsideration at bench."
Petitioner METROBANK is now before us after its motion for reconsideration of the 03 July 1995 amended decision was
denied by respondent Court of Appeals per Resolution of 04 December 1995. 12
We find no compelling reasons to disturb the assailed decision.
We quote with favor the following pronouncements of respondent Court of Appeals in the Amended Decision, thus:
. . . . In the case under scrutiny, we are convinced that We erred in reversing the appealed judgment despite the
finding that subject property covered by TCT 106901 — Quezon City had been sold, in a manner absolute and
irrevocable, by the spouses, Tomas Chia and Vicenta Chan, to plaintiff-appellee, and on September 16, 1980, the
latter complied with its contractual obligation thereunder by paying the total mortgage debt it assumed, amounting
according to Metrobank itself, to P116,416.71, as of September 16, 1980.
All things studiedly viewed in proper perspective, we are of the opinion, and so rule, that whatever debts or loans
mortgagor Chia contracted with Metrobank after September 4, 1980, without the conformity of plaintiff-appellee,
could not be adjudged as part of the mortgage debt the latter so assumed. We are persuaded that the contrary ruling
on this point in Our October 24, 1994 decision would be unfair and unjust to plaintiff-appellee because, before buying
subject property and assuming the mortgage debt thereon, the latter inquired from Metrobank about the exact
amount of the mortgage debt involved.
The stipulation in subject Deeds of Mortgage that mortgagors' debts subsequently obtained would be covered by the
same security became inapplicable, when mortgagor sold to appellee the mortgaged property with the knowledge of
the mortgagee bank. Thus, since September 4, 1980, it was obvious that whatever additional loan mortgagor got
from Metrobank, the same was not chargeable to and collectible from plaintiff-appellee. It is then decisively clear
that Metrobank is without any valid cause or ground not to release the Deeds of Mortgage in question, despite full
payment of the mortgage debt assumed by appellee. 13
156
Petitioner METROBANK is estopped from refusing the discharge of the real estate mortgage on the claim that the
subject property still secures "other unliquidated past due loans." In Maneclang vs. Baun, 14 this Court enumerated the
requisites for estoppel by conduct to operate, to wit:
1. there must have been a representation or concealment of material facts;
2. the representation must have been with knowledge of the facts;
3. the party to whom it was made must have been ignorant of the truth of the matter; and
4. it must have been with the intention that the other party would act upon it.
Respondent GTP, thru Atty. Atienza, requested from METROBANK that he be furnished a copy of the full indebtedness
secured by the real estate mortgage. 15 In response thereto, petitioner METROBANK issued a statement of account as
of September 15, 1980 16 which amount was immediately settled and paid the next day amounting to P116,416.71.
Petitioner METROBANK is thus barred from taking a stand inconsistent with its representation upon which respondent
GTP, as an innocent third person to the real mortgage agreement, placed exclusive reliance. Respondent GTP had the
reasonable right to rely upon such representations as true, considering that it had no participation whatsoever in the
mortgage agreement and the preparation of the statement of account, coupled with the expectation that a reputable
banking institution such as petitioner METROBANK do conduct their business concerns in the highest standards of
efficiency and professionalism. For an admission or representation is rendered conclusive upon the person making it,
and cannot be denied or disproved as against a person relying thereon. A party may not go back on his own acts and
representations to the prejudice of the other party who relied upon them. In the law of evidence, whenever a party
has, by his own declaration, act or omission, intentionally and deliberately led another to believe a particular thing
true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be
permitted to falsify it. 17
Just as decisive is petitioner METROBANK's failure to bring before respondent Court of Appeals the current statement
evidencing what it claims as "other unliquidated past due loans" at the scheduled hearing of 8 March 1995. It was a
golden opportunity, so to speak, lost for petitioner METROBANK to defend its non-release of the real estate mortgage.
Thus, the following pronouncements of this Court in Manila Bay Club Corporation vs. Court of Appeals et. al, 18 speaking
thru Mr. Justice Ricardo Francisco, 19 find rightful application, viz. —
It is a well-settled rule that when the evidence tends to prove a material fact which imposes a liability on a party,
and he has it in his power to produce evidence which from its very nature must overthrow the case made against
him if it is not founded on fact, and he refuses to produce such evidence, the presumption arises that the evidence,
if produced would operate to his prejudice, and support the case of his adversary. . . .
No rule of law is better settled than that a party having it in his power to prove a fact, if it exists, which, if proved,
would benefit him, his failure to prove it must be taken as conclusive that the fact does not exist.
xxx xxx xxx
Where facts are in evidence affording legitimate inferences going to establish the ultimate fact that the evidence is
designed to prove, and the party to be affected by the proof, with an opportunity to do so, fails to deny or explain
them, they may well be taken as admitted with all the effect of the inferences afforded. . . .
The ordinary rule is that one who has knowledge peculiarly within his own control, and refuses to divulge it, cannot
complain if the court puts the most unfavorable construction upon his silence, and infers that a disclosure would have
shown the fact to be as claimed by the opposing party.
Verily, petitioner METROBANK's omission to present its evidence only created an adverse inference against its cause.
Therefore, it cannot now be heard to complain since respondent Court extended a reasonable opportunity to petitioner
METROBANK that it did not avail.1avvphi1
WHEREFORE, the petition is DENIED. The amended decision of respondent Court of Appeals dated 3 July 1995 as well
as its resolution of 4 December 1995 is AFFIRMED, with costs against petitioner.
G.R. No. 146853 February 13, 2006
SALVADOR COMILANG, Petitioner,
vs.
FRANCISCO BURCENA and MARIANO BURCENA, Respondents.
Before the Court is a petition for review on certiorari of the Decision 1 dated October 16, 2000 of the Court of Appeals
(CA) in CA-G.R. CV No. 53794 which affirmed in toto the Decision dated March 28, 1996 of the Regional Trial Court,
Branch 22, Narvacan, Ilocos Sur (RTC) and the CA Resolution dated December 19, 2000 which denied petitioner’s
motion for reconsideration.
On April 29, 1985, Francisco Burcena and Mariano Burcena (respondents), together with their mother, Dominga
Reclusado Vda. de Burcena (Dominga), filed a complaint for annulment of document with damages against Salvador
Comilang (petitioner). The complaint alleges that: respondents are the owners of a 918-square meter parcel of land
located in Manueva, Santa, Ilocos Sur and the house with a floor area of 32 square meters built thereon; respondents
acquired the subject property through their earnings while working abroad; the subject property was declared for
taxation purposes in Dominga’s name as administrator thereof; on or about March 12, 1984, petitioner caused the
execution of a Deed of Donation2 over said property by taking advantage of Dominga’s blindness, old age and physical
infirmity; the said Deed of Donation is null and void because: (a) Dominga had no right to donate the same since she
is not its owner, (b) Dominga did not give her consent and was misled to the execution of such document, (c) granting
Dominga had authority to donate, the donation is void because the property donated is the only property declared in
her name and therefore she could not have reserved for herself in full ownership sufficient property to support herself;
petitioner is in possession of the subject property, depriving respondents of its ownership and enjoyment of its fruits. 3
In his Answer dated February 24, 1986, petitioner contends that: the Deed of Donation was freely and voluntarily
executed by Dominga in consideration of her love and affection for him; the subject property was acquired by Dominga
together with her two sisters, Aniceta Reclusado and Juana Reclusado, long before respondents went to Hawaii;
Dominga erected a house on the land long before the outbreak of World War II; Dominga financed out of her own
money the construction of the house and subsequent improvements thereof, she being a merchant when she could still
travel to Cagayan Valley; granting that respondents had been sending money to Dominga, said money already belonged
to her; if Dominga used said money for improving the house, respondents have no right over the house.4
During the pendency of the case and before she could take the witness stand, Dominga died. 5 Following pre-trial, trial
on the merits ensued. Witnesses for the plaintiffs were respondents and their aunt, Margarita Burcena (Margarita);
while petitioner testified on his own behalf.
On March 28, 1996, the RTC rendered a Decision in favor of the respondents, the dispositive portion of which reads as
follows:
WHEREFORE, decision is hereby rendered declaring the parcel of land and the improvement therein consisting of the
house mentioned and described under paragraph 3 of the complaint, owned by the plaintiffs Francisco Burcena and
Mariano Burcena, but declaring the possession of the defendant in good faith and further:
a) That the Deed of Donation, Exhibit "1" and submarkings null and void;
b) That the defendant must vacate the property and turnover the same to the plaintiffs.
c) Without pronouncement as to moral, actual and other forms of damages as well as non-accounting of the produce
from the property by virtue of the defendant’s possession, thereof, as well as attorney’s fees.
The RTC held that the donation is void because Dominga could not have validly disposed of the subject property since
it was bought with the money sent by respondents while working abroad, although declared for taxation purposes in
Dominga’s name.
157
Dissatisfied, petitioner filed an appeal with the CA. In its Decision dated October 16, 2000, the CA found no cogent
reason to disturb the factual findings of the RTC, as well as the latter’s assessment of the credibility of witnesses. The
CA held that the case involves an implied trust known as purchase price resulting trust under Article 1448 of the Civil
Code where property sold is granted to one party but the price is paid for by another; that the evidence presented by
the respondents convincingly show that the subject property was bought with money belonging to respondents but
declared in Dominga’s name as administrator thereof; and that Dominga’s act of donating the property to petitioner
was beyond her authority and capacity, done without the consent of the real owners, herein Respondents. Thus, the
CA sustained the conclusion of the RTC that the donation is void. 7
Petitioner filed a motion for reconsideration8 but it was denied by the CA in its Resolution dated December 19, 2000.9
Hence, the present petition for review on certiorari anchored on the following assigned errors:
The Honorable Court of Appeals erred:
1. IN DECLARING IN ITS QUESTIONED DECISION xxx THAT "xxx implied trust arises over the subject property xxx";
xxx; AND/OR
2. IN DECIDING THE INSTANT CASE NOT IN ACCORDANCE WITH LAW AND/OR APPLICABLE DECISIONS OF THIS
HONORABLE COURT; AND/OR
3. IN MISAPPRECIATING CIRCUMSTANCES OF SUBSTANCE AND VALUE WHICH GREATLY AFFECT THE OUTCOME OF
THE CASE OR REVERSE THE DECISION OF THE HONORABLE REGIONAL TRIAL COURT OF NARVACAN, ILOCOS SUR,
BRANCH 22.10
Petitioner assails the CA’s application of the principle of implied trust to nullify the Deed of Donation executed in his
favor. He asserts that the existence of an implied trust between respondents and Dominga in relation to the subject
property was never treated by the RTC nor was it brought in issue on appeal before the CA. Petitioner further argues
that Margarita’s statement on the witness stand that Dominga told her that the respondents sent her money to buy
the subject property, should not have been given weight or credence by the RTC and the CA because it is hearsay and
has no probative value.
On the other hand, respondents maintain that the CA has the judicial prerogative to rule on matters not assigned as
errors in an appeal if indispensable or necessary to the just resolution of the case. As to Margarita’s testimony,
respondents submit that it is not hearsay since Margarita merely stated what Dominga said.
The petition is bereft of merit.1avvphil.net
Once a court acquires jurisdiction over a case, it has wide discretion to look upon matters which, although not raised
as an issue, would give life and meaning to the law. Indeed, the Rules of Court recognize the broad discretionary power
of an appellate court to consider errors not assigned. Section 8, Rule 51 of the 1997 Rules of Civil Procedure provides:
SEC. 8 Questions that may be decided. No error which does not affect the jurisdiction over the subject matter or the
validity of the judgment appealed from or the proceedings therein will be considered, unless stated in the assignment
of errors, or closely related to or dependent on an assigned error and properly argued in the brief, save as the court
may pass upon plain errors and clerical errors.
Thus, an appellate court is clothed with ample authority to review rulings even if they are not assigned as errors in the
appeal in these instances: (a) grounds not assigned as errors but affecting jurisdiction over the subject matter; (b)
matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law; (c)
matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and
complete resolution of the case or to serve the interests of justice or to avoid dispensing piecemeal justice; (d) matters Besides, the testimony of Margarita is not the main basis for the RTC’s decision. In fact, her testimony is not
not specifically assigned as errors on appeal but raised in the trial court and are matters of record having some bearing indispensable. It merely serves to corroborate the testimonies of the respondents on the source of the funds used in
on the issue submitted which the parties failed to raise or which the lower court ignored; (e) matters not assigned as purchasing the subject property. The testimonies of all three witnesses for the plaintiffs were found to be convincing
errors on appeal but closely related to an error assigned; and (f) matters not assigned as errors on appeal but upon and credible by the RTC. This Court will not alter the findings of the RTC on the credibility of witnesses, principally
which the determination of a question properly assigned, is dependent.11 because trial courts have vastly superior advantages in ascertaining the truth and in detecting falsehood as they have
the opportunity to observe the manner and demeanor of witnesses while testifying.17
In this case, since the petitioner directly brought in issue on appeal in his Appellant’s Brief the declaration of the RTC
that Dominga could not have validly disposed of the subject property because respondents are the real owners of the All told, the CA did not commit any reversible error in rendering the assailed Decision dated October 16, 2000 and the
subject property since it was bought with money sent by them, it was well-within the CA’s authority to review and Resolution dated December 19, 2000 in CA-G.R. CV No. 53794. The factual determinations of the CA therein are binding
evaluate the propriety of such ruling. In holding that an implied trust exists between respondents and Dominga in and conclusive upon this Court as no compelling reasons exist necessitating a re-examination or reversal of the same.
relation to the subject property and therefore Dominga had no right to donate the same to petitioner, the CA merely
clarified the RTC’s findings. WHEREFORE, the petition is DENIED and the assailed Decision and Resolution are AFFIRMED. Costs against
petitioner.
Article 1448 of the Civil Code on implied trust provides:
Art. 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price
is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while
the latter is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate,
of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in
favor of the child. (Emphasis supplied)

The trust created under the first sentence of Article 1448 is sometimes referred to as a purchase money resulting
trust, the elements of which are: (a) an actual payment of money, property or services, or an equivalent, constituting
valuable consideration; and (b) such consideration must be furnished by the alleged beneficiary of a resulting
trust.12 Respondents have shown that the two elements are present in the instant case. Dominga was merely a trustee
of the respondents in relation to the subject property. Therefore, Dominga could not have validly donated the subject
property to petitioner, as expressly provided in Article 736 of the Civil Code, thus:
Art. 736. Guardians and trustees cannot donate the property entrusted to them.

Truly, nobody can dispose of that which does not belong to him.13

Anent Margarita’s testimony that Dominga told her that the respondents sent her (Dominga) money to buy the subject
property, it cannot be categorized as hearsay evidence. Margarita’s testimony was not presented to prove the truth
thereof, but only to establish the fact that Dominga narrated to Margarita the source of the funds used in the purchase
of the subject property.14 What was sought to be admitted in evidence, and what was actually admitted in evidence,
was the fact that the statement was made by Dominga to Margarita, not necessarily that the matters stated by her
were true. The said utterance is in the nature of an independently relevant statement which may be admitted in
evidence as such, but not necessarily to prove the truth thereof. 15

Thus, while it is true that the testimony of a witness regarding a statement made by another person, if intended to
establish the truth of the fact asserted in the statement, is clearly hearsay evidence, it is otherwise if the purpose of
placing the statement in the record is merely to establish the fact that the statement was made or the tenor of such
statement. Regardless of the truth or falsity of a statement, when the fact that it has been made is relevant, the
hearsay rule does not apply and the statement may be shown. As a matter of fact, evidence as to the making of the
statement is not secondary but primary, for the statement itself may constitute a fact in issue, or be circumstantially
relevant as to the existence of such a fact. 16 For this reason, the statement attributed to Dominga regarding the source
of the funds used to purchase the subject property related to the court by Margarita is admissible if only to establish
the fact that such statement was made and the tenor thereof.

158
G.R. No. 116211 March 7, 1997
MEYNARDO POLICARPIO, petitioner,
vs.
COURT OF APPEALS and ROSITO PUECHI S. UY, respondents.
The Court finds occasion to apply the general principles of constructive trust as authorized by the Civil Code in granting
this petition and in compelling private respondent to implement his trust relationship with petitioner.
This is a petition under Rule 45 of the Rules of Court to reverse the Decision 1 of public respondent 2 in CA-G.R. CV No.
32821 promulgated on March 21, 1994, and the Resolution 3 promulgated on July 5, 1994, denying petitioner's motion
for reconsideration.
The dispositive portion of the assailed Decision reads:4
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. REVERSING and SETTING ASIDE the appealed decision dated 10 September 1990;
2. DISMISSING the Complaint; and
3. Without pronouncement as to costs.
The Facts
The facts of the case, as culled from the challenged Decision, are simple. Petitioner (along with his co-plaintiffs in the
antecedent cases, namely, Rodolfo Gayatin, Jose Villacin and Jocelyn Montinola 5) and private respondent were former
tenants of the 30-door Barretto Apartments formerly owned by Serapia Realty, Inc.. Sometime in April 1984, private
respondent was elected President of the Barretto Tenants Association (hereafter referred to as the "Association") which
was formed, among others, "to promote, safeguard and protect the general interest and welfare of its members." 6
In a letter dated July 30, 1984, private respondent as president of the Association sought the assistance of the then
Minister of Human Settlements to cause the expropriation of the subject property under the Urban Land Reform
Program for subsequent resale to its tenants. The matter was endorsed to the Human Settlements Regulatory
Commission, which in a letter dated November 5, 1984, signed by Commissioner and Chief Executive Officer Ernesto
C. Mendiola, rejected the tenant's request for expropriation. The letter stated in part: 7
At the moment, the effects of the provisions of PD 1517, otherwise known as the Urban Land Reform Decree, are
limited only to the proclaimed 245 APD's and/or ULRZ's. Be informed further that, pursuant to Rule VIII & IX of the
Rules and Regulations of the abovementioned Decree, expropriation will be availed of only as a last resort as there
are various modes of Land Acquisition/Disposition techniques which the Ministry can avail of to help bonafide (sic)
tenants/residents of a certain area.
Failing to get the assistance of the government, the tenants undertook to negotiate directly with the owners of the
Barretto Apartments. Initially, Private Respondent Rosito Uy orally expressed to Mrs. Rosita Barretto Ochoa the tenants'
desire to purchase their respective units. Later, in a letter dated May 29, 1985, signed by thirty (30) tenants of the
commercial and residential units, the tenants formally expressed to Mrs. Ochoa their intent to purchase.
On July 27, 1985, Serapia Real Estate, Inc., sent to Rosito Uy, in his capacity as president of the Association, the
following letter:8
Sir:
This is in response to your letter regarding your intent to buy our property together with its improvements located
at corners Haig and Romualdez Streets and along Gen. Kalentong Street, Mandaluyong, Metro Manila. We would like
159
to inform you that we are offering to sell the said property at a price of FOUR MILLION FIVE HUNDRED THOUSAND
(P4,500,000.00) PESOS ONLY, under the following Terms and Conditions:
AREA: 2,237 square meters
Manner of Payment: An earnest money of P100,000.00 within 30 days.
Full payment payable within 60 days.
This offer is on a "FIRST COME FIRST SERVED BASIS" and our price is good only within 60 days or until September
30, 1985 only.
Thank You.
In addition, Serapia Realty, Inc., sent to spouses Gayatin a mimeographed letter stating: 9
November 15, 1985
Mr./Mrs. Gayatin
SIR/MADAM:
Please be informed that we are intending to sell the unit you are now occupying.
We are therefore giving you the first priority to purchase the same, if you desire.
We are giving you a period of ten (10) days from receipt hereof to see us(,) otherwise, we will consider your inaction
a waiver in (sic) your part to purchase the same.
Very truly yours,
SERAFIA REALTY INC.
By: S/ Mrs. Rosa B. Ochoa
T/ Mrs. Rosa B. Ochoa
Kalentong Mandaluyong, Metro Manila
(Authorize (sic) representative)
On November 20, 1985, Rodolfo Gayatin acknowledged receipt of the said letter with a request that he be furnished
with the following information: 10
a. Consideration of the sale;
b. Terms and conditions of the sale; and
c. Plan indicating the areas and boundaries of each unit.
Letters acknowledging receipt of Mrs. Ochoa's letter of intent to sell the apartment unit occupied by the tenants were
sent by Dionisio Enriquez and Elena J. Bañares. The tenants designated and appointed private respondent as their
president to negotiate with Serapia Realty, Inc.. But the negotiations apparently did not ripen into a perfected sale.
One and a half years later, on March 12, 1987, petitioner and his co-plaintiffs were notified that private respondent
was the new owner of the apartment units occupied by them. Believing that they had been betrayed by their Association
president, petitioner sued for "Redemption and Damages with Prayer For Preliminary Injunction."
Private respondent counter-sued for Damages and Accion Publiciana with Preliminary Attachment. Joint trial of the two
cases ensued. The trial court found that private respondent had been designated and entrusted by plaintiffs to negotiate
with the Barretto family for the sale of the units. It also found that a constructive trust was created between the private
respondent as "the cestui que trust [should be trustee] and plaintiffs as beneficiaries [or cestuis que trust] vis-a-vis the
subject units." 11 The dispositive portion of the trial court decision reads: 12
WHEREFORE, judgment is hereby rendered in the above-entitled cases in favor of plaintiffs Rodolfo Gayatin, Jose
Villacin, Jocelyn Montinola and Meynardo Policarpio, and against defendant, Rosito Puechi S. Uy, —
1. Ordering said defendant to execute the corresponding deeds of conveyance in favor of plaintiffs Meynardo
Policarpio, Jocelyn Montinola, Jose Villacin and Rodolfo Gayatin covering Door 8, Lot 14; Door 3, Lot 9; Door 2, Lot
9; and Door 1, Lot 9, upon refund by the plaintiffs to the defendant of the sums of P35,200.00; P35,520.00;
P35,600.00 and P47,200.00 respectively, without any interest.
 Should defendant Uy fail to so execute the deeds of conveyance herein ordered within fifteen (15) days from finality
of judgment, the Clerk of this Court will execute the same and the Register of Deeds will be ordered to nullify the
certificates of title in the name of said defendant and to issue other certificates of title in favor of the four above-
named plaintiffs, respectively; and to pay to the plaintiffs the following sums:
a) P15,000.00 as attorney's fees;
b) P40,000.00 as moral damages; and
c) P20,000.00 as exemplary damages,
all with interest at 12% per annum from date of this decision;
2. Dismissing the Complaint in Civil Case No. 54444 as far as defendant Serapia Real Estate Inc. is concerned;
3. Dismissing defendants' counterclaims in Civil Case No. 54444; and
4. Dismissing Rosito Puechi Uy's complaint in Civil Case No. 55739.
Costs against defendant Uy.
Private respondent appealed the decision to public respondent which as earlier stated reversed the decision and denied
the subsequent motion for reconsideration. Hence, this petition only by Meynardo Policarpio. His co-plaintiff in the
antecedent case, Jose Villacin, filed a Petition for Intervention13 on March 28, 1995, which the First Division of this
Court in a Resolution dated June 26, 1995, denied for lack of merit, because Villacin's earlier petition docketed as G.R.
No. 116137 (Jose Villacin vs. Court of Appeals, et al.) had already been dismissed for failure to attach an affidavit of
service. 14
The Issue
The sole issue raised by petitioner in this appeal is: 15
The respondent Court erred in reversing the finding of the trial court that a constructive trust existed between the
plaintiffs and the defendant.
Public respondent, in finding that a constructive trust had not been created, ruled: 16
The contemporary and subsequent acts of the parties herein fail to convince Us that a constructive trust exists for
the benefit of the appellees (tenants). A reading of the Articles of Incorporation of Barretto Apartment Tenants
Association, Inc. (Exh. "J") shows that the purpose for its formation is couched in general terms without specifically
stipulating the proposed purchase and sale of the apartment units. While it may be conceded that the sale to the
tenants was a general concern that would have redounded to their benefit, still it cannot be denied that the transaction
could not have been effected unless the tenants and the owners came to terms regarding the sale. The record reveals
that appellant (herein private respondent) did in fact send several communications, first to the Ministry of Human
Settlements and when this avenue did not prosper, to the Barretto family in an effort to pursue their common desire
to own their respective unit(s). The letter to the Minister of Human Settlements is dated July 30, 1984 (Exh. "J")
about a year before the execution of the Articles of Incorporation on 06 August 1985. Incidentally, no evidence
appears on record to show that the Association filed the requisite documents for incorporation with the Securities
and Exchange Commission.
The Deeds of Absolute Sale in favor of appellant over appellees' unit appear to have been executed on 05 August
1986 (Exhs. "B" to "F") or about two (2) years after appellant was designated President of the Association and
approximately one (1) year after the Articles of Incorporation were drawn up and signed by the parties. (Exhibit "S")
Public respondent contended that plaintiffs were informed of the negotiations for the purchase and sale of property.
Further, public respondent said:
it appears incumbent upon the tenants to verify from time to time on (sic) the progress of the negotiations not only
from Mrs. Ochoa but also from appellant who live (sic) in the same apartment complex. Their inaction leads to the
160
impression that they lacked interest to pursue their original plan to purchase the property or they could not agree on
the terms and conditions for the sale. 17
Before us, petitioner argues that public respondent erred in stating that "there was no common interest on the pan of
the members of the association to purchase units they were occupying." 18 He also maintains that it is immaterial
whether the intent to buy the units was specifically stated in the purposes of the Association. What is important is that
the "contemporary and subsequent acts of parties indicated such a purpose." Petitioner insists that the tenants had
authorized and private respondent had agreed to negotiate with the owners regarding the terms of the sale, precisely
to conform to the desire of the owners to deal with only one person. Petitioner vehemently denies that the co-tenants
of private respondent "had revoked or withdrawn the authority and trust reposed on the private respondent to act as
negotiator in their behalf." 19
Private respondent rebuts by saying that the entire property consisting of thirty (30) doors was not sold on one
particular date. Rather, there were actually two batches of sale. He asserts that petitioner, in feigning ignorance of the
two batches of sale and siting private respondent, had created an alibi to suspend payment of rental for years. 20
It should also be considered, states private respondent, that upon denial of the tenants' request for expropriation by
the Ministry of Human Settlements, and the revelation that Barretto's apartments were heavily encumbered, tenants
"completely abandoned the plan to organize a formal association." Assuming for the sake of argument, adds private
respondent, that the informal Association created a relationship among the parties, "the same ceased and expired by
virtue of the act of the owners of the apartment who directly deal with the tenants" under Article 1924 21 of the Civil
Code. 22
The Court's Ruling
We find for petitioner.
As a rule, the jurisdiction of this Court in cases brought before it from the Court of Appeals is limited to the review and
revision of errors of law allegedly committed by the appellate court. However, when there is conflict between the factual
findings of the Court of Appeals and the trial court, 23 the Court may review such findings and conclusions, as we now
do.
We hold that an implied trust was created by the agreement between petitioner (and the other tenants) and private
respondent. Implied trusts are those which, without being expressed, are deducible from the nature of the transaction
by operation of law as matters of equity, independently of the particular intention of the parties. 24 Constructive trusts
are created in order to satisfy the demands of justice and prevent unjust enrichment. They arise against one who, by
fraud, duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and
good conscience, to hold. 25 It is not necessary that the intention of the tenants to purchase their apartments units be
categorically stated in the purposes of their Association. A constructive trust as invoked by petitioner can be implied
from the nature of the transaction as a matter of equity, regardless of the absence of such intention in the purposes
of their Association. During his negotiations with Serapia Realty, Inc., private respondent admitted that he was not
only representing himself but also the other tenants as president of the Association. This admission recognized the
confidence reposed in him by his co-tenants. He testified: 26
Q Apart from the Regulatory Commission, and from the First Lady Imelda Marcos, you did not make any
communication to any person or body in your capacity as President of the Association anymore?
A We also tried to negotiate with Mr. Ochoa.
Q What was your purpose of attempting to communicate with Mr. Ochoa?
A So that those who cannot afford to pay in cash can be allowed to pay in installment.
 Q You used the word "we", to whom are you referring to?
A My co-tenants in the apartment.
Q And when you made representations with the owner of the apartment, you were doing this in your capacity as
President?
A Both as individual member and as President.
Q In your capacity as both individual member and President?
A Yes, sir.
Alfonso Barretto, president of Serapia Real Estate Corporation, testified that the owners wanted to deal with one
"spokesman." 27 Hence, the tenants authorized private respondent to negotiate on their behalf. Unfortunately, private
respondent negotiated for himself only, and successfully purchased eight (8) apartment units and secured an authority
to sell the remaining twenty-two (22) units.
Private respondent alleges that, after being informed by the owner, petitioner, together with the latter's co-plaintiffs in
the action for redemption, did not want to contribute funds to redeem the encumbered apartment. (Such redemption
was required before the units could be sold.) The trial court debunked this allegation thus: 28
. . . . It taxes the mind no end to accept defendant's claim that when the units which the tenants have for years been
dreaming of owning one day were ready to be sold to them, all of them would suddenly become "reluctant," to quote
his word, to buy them. Considering the virtually (sic) give-away considerations (P42,200.00, P35,600.00, P35,520.00
and P35,200.00) for the subject units all of which were uniformly two-storey apartments with "2 bedrooms, living
and dining rooms and kitchen" (citing TSN, January 12, 1990, p. 7) situated in a strategic and prime area, it is
unbelievable and inconsistent with the ordinary imperatives of human experience for the plaintiffs to suddenly show
reluctance towards the opportunity they have been expecting and preparing for all along.
If only the tenants had been informed by private respondent of this predicament of the owners, surely they would have
raised the required amount to redeem the property and, in turn, acquired the units being rented by them. The
incriminating admission of private respondent that he had not informed the plaintiffs in the redemption case of the
prices at which the apartment units were sold demonstrated beyond cavil his betrayal of their trust: 29
Q Did you inform vergally (sic) these 4 plaintiffs that their apartments were being bought at P47,200.00, P35,600,
P35,520 and P35,200?
A I did not.
Q As President of the association who got the trust and confidence of the members including the 4 plaintiffs, did you
not consider it in keeping with trust and confidence to officially inform them that these apartments is (sic) being sold
at that (sic) prices and if you could buy this (sic), you pay this (sic) amount. You did not inform them, is it not?
ATTY. BALLELOS (counsel for private respondent):
Already answered. He did not inform them but as far as the amount is concerned as a matter of discretion.
The ability of the tenants to pay the purchase price for their units was clearly found by trial court to be sufficient; and
this finding was not contested by private respondent, to wit: 30
The ability of the plaintiffs to pay for their respective apartment units in question is demonstrated when they promptly
complied with the Court's Order of March 15, 1990 "to pay to the Branch Clerk of this Court all the rentals due on
their respective units from the time they stopped paying up to this month of March, which amounts were ordered to
be deposited "with the Philippine National Bank, Pasig Branch, Shaw Blvd., Pasig, in self-renewing 120-day time
deposits," which now stands at P126,434.84 (including "the monthly rentals in the same amount that they were last
paying to defendant Serapia Real Estate, Inc.," from the month of April 1990 to July 1990) per PNB Certificates of
Time Deposit Nos. 713637-C, 713638-C, 713639-C, 713640-C and 6713641-C, all dated August 30, 1990, now in
the possession of the Branch Clerk of this Court.
161
The tenants could not be faulted for not inquiring into the status of private respondent's negotiation with the owners
of the apartments. They had a right to expect private respondent to be true to his duty as their representative and to
take the initiative of informing them of the progress of his negotiations.
The sale of the apartments in favor of private respondent was on August 6, 1986. Yet, it was only on March 27, 1987,
that he informed the tenants of such sale. If he was in good faith, why the delay? Obviously, he hid the perfection of
the sale from them. Why did he not inform the tenants that he was the owner as soon as the sale was consummated
if, according to him, his co-tenants were unwilling to share the expenses of redemption? His co-tenants could not have
blamed him for acquiring the entire property; after all, they supposedly did not have the money to contribute. Truly,
the actuations of private respondent show nothing but greed on his part; he purchased the units for himself at bargain
prices so he could resell them at a profit at the expense of the tenants. This violation of the trust reposed in him
warrants the sanction provided by the equitable rule on which constructive trust is founded. Unfortunately, however,
not all the plaintiffs in the original redemption case will be able to avail of this award because a party who has not
appealed from the decision may not obtain any affirmative relief from the appellate court other than what he had
obtained from the lower court, if any, whose decision is brought up on appeal. 31
The conclusion we thus reach in this case, finding constructive trust under Article 1447 32 of the New Civil Code, rests
on the general principles on trust which, by Article 1442, have been adopted or incorporated into our civil law, to the
extent that such principles are not inconsistent with the Civil Code, other statutes and the Rules of Court.
This Court has ruled in the case of Sumaoang vs. Judge, RTC, Br. XXXI, Guimba, Nueva Ecija33 that:
A constructive trust, otherwise known as a trust ex maleficio, a trust ex delicto, a trust de son tort, an involuntary
trust, or an implied trust, is a trust by operation of law which arises contrary to intention and in invitum, against one
who, by fraud, actual or constructive, by duress or abuse of confidence, by commission of wrong, or by any form of
unconscionable conduct, artifice, concealment, or questionable means, or who in any way against equity and good
conscience, either has obtained or holds the legal right to property which he ought not, in equity and good conscience,
hold and enjoy. It is raised by equity to satisfy the demands of justice. However, a constructive trust does not arise
on every moral wrong in acquiring or holding property or on every abuse of confidence in business or other affairs;
ordinarily such a trust arises and will be declared only on wrongful acquisitions or retentions of property of which
equity, in accordance with its fundamental principles and the traditional exercise of its jurisdiction or in accordance
with statutory provision, takes cognizance. It has been broadly ruled that a breach of confidence, although in business
or social relations, rendering an acquisition or retention of property by one person unconscionable against another,
raises a constructive trust.
And specifically applicable to the case at bar is the doctrine that "A constructive trust is substantially an appropriate
remedy against unjust enrichment. It is raised by equity in respect of property, which has been acquired by fraud,
or where although acquired originally without fraud, it is against equity that it should be retained by the person
holding it."
The above principle is not in conflict with the New Civil Code, Codes of Commerce, Rules of Court and special laws.
And since We are a court of law and of equity, the case at bar must be resolved on the general principles of law on
constructive trust which basically rest on equitable considerations in order to satisfy the demands of justice, morality,
conscience and fair dealing and thus protect the innocent against fraud. As the respondent court said, "It behooves
upon the courts to shield fiduciary relations against every manner of chicanery or detestable design cloaked by legal
technicalities."
Although the citations in the said case originated from American jurisprudence, they may well be applied in our
jurisdiction. "(S)ince the law of trust has been more frequently applied in England and in the United States than it has
been in Spain, we may draw freely upon American precedents in determining the effects of trusts, especially so because
the trusts known to American and English equity jurisprudence are derived from the fidei commissa of the Roman Law
and are based entirely upon civil law principles." 34
Having concluded that private respondent willfully violated the trust reposed in him by his co-tenants, we consider it a
serious matter of "justice, morality, conscience and fair dealing" that he should not be allowed to profit from his breach
of trust. "Every person who through an act of performance by another, or any other means, acquires or comes into
possession of something at the expense of the latter without just or legal ground, shall return the same to him." 35 Thus,
petitioner is granted the opportunity to purchase the property which should have been his long ago had private
respondent been faithful to his trust.
We only regret that we cannot grant the same opportunity to the other beneficiaries or cestuis que trust for their failure
to perfect their petitions for review of the respondent Court's Decision.
WHEREFORE, the petition is hereby GRANTED. The assailed Decision and Resolution are hereby REVERSED and SET
ASIDE. Consistent with the trial court's decision, Private Respondent Rosito Puechi S. Uy is ORDERED to EXECUTE a
deed of conveyance covering Door 8, Lot 14, in favor of Petitioner Meynardo Policarpio upon the latter's payment of
P35,200.00 without any interest.
162
G.R. No. L-45027 January 27, 1992
BERNARDO DE LOS SANTOS, petitioner,
vs.
FAUSTINO B. REYES, THE HON. COURT OF APPEALS and SPOUSES BENJAMIN DIESTRO and AIDA
LAGAREJOS, respondents.
In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner urges this Court to review and
set aside the decision of the respondent Court of Appeals in C.A.-G.R. No. 41943-R 1 promulgated on 23 July 1975,
which affirmed in toto the decision of the then Court of First Instance (now Regional Trial Court) of Rizal in Civil Case
No. 8640, dated 12 February 1968, 2 dismissing herein petitioner's complaint for reconveyance of a parcel of land
located in Biga-a, San Roque, Angono, Rizal, the dispositive portion of which reads as follows:
FOR ALL THE FOREGOING CONSIDERATIONS, the Court hereby dismisses this case and declares the defendant
Faustino B. Reyes the owner of the parcel of land subject of this action.
Plaintiff is hereby ordered to pay the amount of ONE THOUSAND FIVE HUNDRED (P1,500.00) PESOS as moral
damages and for attorney's fees plus the costs of suit.
In a bid to obtain a reversal of the trial court's decision, petitioner attempted to persuade the Court of Appeals to agree
with his proposition that the trial court:
I. . . committed grave abuse of discretion in not considering the relevant documentary evidence submitted by the
plaintiff in support of his cause of action alleged in the complaint;
II. . . erred in finding and concluding that plaintiff failed to substantiate his complaint and did not even bother to
contradict defendant Faustino Reyes' testimonies;
III. . . erred in admitting and considering the oral testimony of defendant Faustino B. Reyes in establishing express
trust over the parcel of land in question over and above the objection of the plaintiff; and
IV. . . erred in finding and holding that the present action of plaintiff is clearly unfounded and without merit. 4
Respondent Court was not persuaded. Its rejection of the assigned errors deserves to be quoted:
As to the first assignment of error, appellant has no reason to complain that the trial court did not consider the
documents that he presented as his only evidence (Exhs. A, A-1 to K). In ruling in favor of the appellees and against
appellant, it cannot be seriously asserted that the trial court did not give due regard to the prima-facie effect or value
of appellant's documentary evidence, particularly the deed of sale (Exhibit A), the certificate of title, TCT No. 59373
in the name of his wife Virginia T. Reyes (Exh. B), the tax declaration also in her name (Exh. K), and the extrajudicial
settlement affidavit of appellant Reyes (Exh. C). Otherwise, the court should not have found it necessary to enter,
as it did, into a thorough, extensive analysis of the evidence of the appellee, both testimonial and documentary (Exh.
1).
It cannot, likewise, be denied that appellant failed to contradict the testimony of appellee Reyes to the effect that he
placed the land in question in the name of his daughter, Virginia, only to conform with the requirement of the
hacienda-owner, Justa G. Vda de Guido, that no one person can buy more than two lots at a time, and that since the
sale, the property had been taken into his possession up to the time it was sold, the products thereof having been
received by appellee Reyes even after her daughter's marriage to appellant. This unrebutted testimony of appellee
Reyes could not have been evaluated except by weighing it against the documentary evidence of appellant. But with
appellant giving no testimony to rebut that of appellee Reyes, the lower court cannot be said to be in error, as claimed
by appellant (2nd assignment of error), in finding that "plaintiff failed to substantiate his complaint and did not even
bother to contradict defendant Faustino Reyes" testimony.
The observation of the lower court that appellant failed to substantiate his complaint is glaringly true with respect to
the allegation that the baby of Virginia T. Reyes died after the mother died of coronary embolism on the same date
she gave delivery (sic) to the baby girl. This allegation was specifically denied in the answer of appellee Reyes, who
repeated his averment therein in his testimony in court that the baby was born dead because its head was crushed
when extracted from the mother's womb with forceps. Yet, appellant did not take the witness stand to deny this fact.
None of his documentary evidence on the sole reliance of which he rested his case relates to how the baby was born
— alive or dead. This point is precisely the most decisive factor in determining the merit of his claim to have inherited
the property in question from the child, because the latter inherited it from its mother. It was incumbent upon him
to prove that the child was born alive and died after the mother has (sic) died earlier, as required by Art. 43 of the
Civil Code which provides:
Art. 43. If there is a doubt, as between two or more persons who are called to succeed each other, as to which of
them died first, whoever alleges the death of one prior to the other, shall prove the same in the absence of proof,
it is presumed that they died at the same time and there shall be no transmission of rights from one to the other.
Not only did appellant failed (sic) to discharge the duty imposed upon him for having alleged the death of his wife
prior to that of his child, but also failed to contradict the positive and categorical testimony of appellee Reyes that
the child was born dead. The alleged admission in the answer of the appellees spouses to substantiate the allegation
of the appellant in his complaint is ineffective against the specific denial in appellee Reyes' answer, repeated in his
testimony. With this particular matter in issue, it is Reyes who is directly concerned, and the supposed admission of
the appellee-spouses who are complete strangers to the family of appellant and Reyes, can have no binding force
and effect upon the latter. Hence, on the opposing claims as to who would inherit the property in question, that of
appellee must be sustained as the lower court ruled correctly. With this finding alone, the dismissal of the complaint
would be in order and fully justified.
Moreover, as allegedly intimated, the lower court's finding that the land was actually owned by Faustino B. Reyes,
notwithstanding that the title was in the name of Virginia T. Reyes, pursuant to the deed of sale where the latter was
made to appear as the buyer, finds convincing support from the evidence of record. It was clearly explained why
both the deed of sale and the certificate of title mentioned Virginia T. Reyes as the owner. The explanation was fully
supported by the agreement (kasunduan) duly notarized on June 15, 1955 (Exh. 1) which shows that Faustino Reyes
was the buyer of three lots with a total consideration of P14,000.00. At the time of the execution of this agreement,
he paid P11,000.00, leaving only a balance of P3,000.00 which he paid later. Virginia, then only 18 years of age,
could not paid (sic) the price of the lot in question. By no stretch of the imagination can it be asserted that she bought
the land herself as the deed of sale purports to show. The extrajudicial adjudication affidavit of appellee Reyes (Exh.
C) can not, under the circumstances just noted, be read as an admission of Reyes that her daughter, Virginia, was
the owner of the land, as appellant contends. It is evident that the execution of this document was resorted to only
as the most practical and expeditious way to transfer the land from the name of Virginia T. Reyes to that of appellee
Reyes. It cannot have a greater probative value than the deed of sale (Exh. A) and the certification of title (Exh. B)
relied upon by appellant, which have already been shown to be of no avail against the clear and convincing evidence
of appellee.
There is no question of trust involved under the proven facts of the case, as appellant raises in his third assignment
of error. The court a quo made no finding as to the existence or non-existence of one. As cited by appellant himself,
Article 1448, New Civil Code, provides:
There is an implied trust when property is sold, and the legal estate is granted to one party but the practice is paid
by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the
latter is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate,
of the one paying the price of the sale; no trust is implied by law, it being disputably presumed that there is a gift
in favor of the child. (Emphasis supplied).
163
The disputable presumption of a gift as created in the aforequoted provision has been amply overcome by the
evidence of appellee Reyes, as already demonstrated. If it was a gift, the land should have been taken possession of
by appellant at least after he married his wife as the supposed beneficiary. They then should have enjoyed also the
fruits, and also paid for the tax. No evidence, however, of such payment was presented. To all appearances, appellant
knew as a fact that his wife never was the owner of the land, not even as a gift under the legal provision he cited.
Otherwise, it should not have taken him almost seven long years to assert ownership with the filing of the present
action. That this action is a mere afterthought, stirred by a legal mind with a gambling instinct is not just a mild
surmise, considering how long it took the appellant to file it in court and its contingent nature. It may be well to
remember, however, that lawsuits are not won by chance, as by the turn of the dice, or how the cards fall on the
gambling table — not while the courts sit, anyway. 5
Petitioner could not accept the second defeat. Invoking this Court's authority under Rule 45 of the Rules of Court, he
filed the instant petition on 27 December 1976. 6 Private respondents filed their Comment 7 in compliance with the
resolution of 26 January 1977. 8 Petitioner was directed to file a Reply thereto, which he complied with on 11 July
1977. 9
The Court gave due course to the petition. 10
In his Brief filed on 26 September 1977, 11 petitioner imputes upon the respondent court the commission of the
following "grave errors of law and/or abuse of discretion" by:
I. . . misinterpreting and/or disregarding the probative value of the purely public documentary evidence adduced by
herein petitioners as against the oral testimony of private respondent Faustino B. Reyes, which, aside from being
self-serving, was impeached by his own solemn declaration contained in the affidavit of extrajudicial declaration,
Exhibit "C", executed prior to the instant controversy, contrary to the well established and long settled rule of
jurisprudence that public documents should be accorded the highest probative value and they can only be invalidated
by beyond proponderance (sic), clear, conclusive, convincing and strong evidence.
II. . . declaring private respondent Faustino B. Reyes as the owner of the parcel of land in question notwithstanding
the undisputed facts that said parcel of land was registered under Act No. 496, as amended, under Transfer Certificate
of Title No. 59573, Registry of Rizal, in the name of the late Virginia T. Reyes, and declared for taxation purposes in
the name of the latter under Tax Declaration No. 2323, Exhibits "B" and "K", respectively.
III. . . admitting the oral testimony of respondent Faustino B. Reyes tending to establish an alleged trust, either
express or implied, which oral testimony was vehemently objected to by the herein petitioners, in utter violations
(sic) of Articles 1431, 1443 and 1448, New Civil Code.
IV. . . holding and concluding that the late Virginia T. Reyes and the baby girl died at the same time, overlooking the
clear admission in the pleading of disinterested respondents spouses Benjamin Diestro and Aida Legarejos,
represented by same (sic) counsel for respondent Faustino B. Reyes, that the baby girl was born alive; and, in
misinterpreting as well as in misapplying Article 43, New Civil Code, in the case at bar. 12
In their Brief on 23 December 1977, 13
respondents met squarely the issues raised by the petitioners.
The petition is not impressed with merit as nothing in the pleadings points to any reversible error which respondent
court committed.
However disguised, the assigned errors are a repetition of what petitioner raised before the respondent court, which,
with the exception of the third assigned error, involve questions of fact.
Well-settled is the general rule that the jurisdiction of this Court in cases brought before it from the Court of Appeals
is limited to reviewing or revising errors of law; findings of fact of the latter are conclusive. 14 It is not the function of
this Court to analyze or weigh such evidence all over again. It is only in exceptional cases where this Court may review
findings of the fact of the Court of Appeals. In Medina vs. Asistio, Jr., 15 this Court took occasion to enumerate such
exceptional circumstances, to wit:
It is a well-settled rule in this jurisdiction that only questions of law may be raised in a petition for certiorari under
Rule 45 of the Rules of Court, this Court being bound by the findings of fact made by the Court of Appeals. The rule,
however, is not without exception. Thus, findings of fact by the Court of Appeals may be passed upon and reviewed
by this Court in the following instances, none of which obtain in the instant petition:
(1) When the conclusion is a finding grounded entirely on speculation, surmises or conjectures (Joaquin v. Navarro,
93 Phil. 257 [1953]); (2) When the inference made is manifestly mistaken, absurd or impossible (Luna v. Linatok,
74 Phil. 15 [1942]); (3) When there is a grave abuse of discretion (Buyco v. People, 95 Phil. 453 [1955]); (4) When
the judgment is based on a misapprehension of facts (Cruz v. Sosing, L-4875, Nov. 27, 1953); (5) When the
findings of fact are conflicting (Casica v. Villaseca, L-9590 Ap. 30, 1957; unrep.); (6) When the Court of Appeals,
in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both
appellant and appellee (Evangelista v. Alto Surety and Insurance Co., 103 Phil. 401 [1958]); (7) The findings of
the Court of Appeals are contrary to those of the trial court (Garcia v. Court of Appeals, 33 SCRA 622 [1970];
Sacay v. Sandiganbayan, 142 SCRA 593 [1986]); (8) When the findings of fact are conclusions without citation of
specific evidence on which they are based (Ibid.,); (9) When the facts set forth in the petition as well as in the
petitioners' main and reply briefs are not disputed by the respondents (Ibid.,) and (10) The finding of fact of the
Court of Appeals is premised on the supposed absence of evidence and is contradicted by the evidence on record
(Salazar v. Gutierrez, 33 SCRA 242 [1970]).
The third assigned error raises a question of law. Unfortunately, however, petitioner miserably failed to demonstrate
that respondent court committed any error which warrants reversal. In the first place, estoppel was not raised by him
in the Brief he submitted to the respondent Court. He cannot raise it for the first time in this petition. In the second
place, petitioner assumes that an express trust over an immovable was created when it was made to appear that the
land in question was sold to and registered in the name of Faustino Reyes' daughter, Virginia — wife of petitioner — to
conform with the limitation imposed by the vendor that no vendee could purchase from the former more than two lots.
Consequently, pursuant to Article 1444 of the Civil Code, such a trust cannot be proved by parol evidence. If his
assumption is correct, Article 1444 is applicable and both the trial court and the respondent Court then erred in
admitting the oral testimony of Faustino Reyes concerning the facts surrounding the "sale" of the lot in favor of Virginia.
Unfortunately, the assumption is wrong. There is neither an express nor implied trust in this case. The applicable
provision of the Civil Code, as correctly pointed out by respondent Court, is Article 1448 which provides as follows:
There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by
another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is
the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one
paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of
the child. (Emphasis supplied).
Accordingly, testimonial evidence, such as that offered by Faustino Reyes, that the land was not given as a gift to
Virginia, was properly allowed to rebut the disputable presumption established in the foregoing article.
WHEREFORE, for lack of merit, the instant petition is hereby DISMISSED with costs against petitioner.
164
[ G.R. No. 233775, September 15, 2021 ]
DORIS MARIE S. LOPEZ, PETITIONER, VS. ANICETO G. SALUDO, JR., RESPONDENT.
Respondent Aniceto G. Saludo (respondent) filed Civil Case No. 70886-PSG, an Action for Reconveyance and Damages
with a Prayer for a Temporary Restraining Order and/or Preliminary Injunction against petitioner. Respondent prayed
that he be declared the true owner of two parcels of land located in Barrio Pineda, Pasig City, and to have said properties
reconveyed to him. Respondent further prayed for the payment of attorney's fees, litigation expenses and costs of suit.
Respondent alleged that sometime in April or May 1997, petitioner told him that she knows of two parcels of land that
were being offered for sale at a reasonable price. At first, respondent was hesitant to buy the said lands. However, he
was eventually convinced to purchase the subject properties due to the persistent assurances of petitioner that: (a)
the titles thereto were clean; (b) the transfer certificates of title (TCT) would be issued in respondent's name after the
execution of the sale; and (c) that the offered selling price was very reasonable and even bordering on a bargain sale
considering the location of the properties and their proximity to business centers.
Petitioner then offered to pose as the buyer because the seller, who was her close friend, allegedly wanted to deal only
with her to keep his financial constraints within his close family friends. Respondent then entrusted to petitioner the
purchase price amounting to P15,000,000.00, with the agreement that petitioner would be the signatory in the Deed
of Sale but will hold the properties in trust for, and subsequently reconvey the same to, respondent.
After the execution of the sale, however, respondent noticed that petitioner started evading him and did not give any
update as to the registration of the sale in his name. When respondent inquired on the status of the properties, he
found out that the properties were already registered in the name of petitioner as evidenced by TCT Nos. PT-111136
and PT-111137 issued by the Register of Deeds of Pasig City, pursuant to a Deed of Absolute Sale5 dated May 25,
1999 executed by Bulalacao Realty Corporation (BRC) in favor of petitioner.
This prompted respondent to immediately assume possession of the properties and introduce major renovations on the
house amounting to a total of P9,000,000.00. He likewise paid the real property taxes thereon for 13 years. Since then,
he has been in actual possession of the properties. As the occupant thereof, he is also the one paying the homeowner's
association dues.
Respondent made several demands, both oral and written, upon petitioner to reconvey the subject properties to him,
but to no avail. Hence, respondent filed an Affidavit of Adverse Claim6 on July 31, 2001 against petitioner over the
properties and had it annotated on the TCTs.
On July 19, 2006, respondent filed the instant Complaint for Reconveyance and Damages7 imputing bad faith on the
part of petitioner. He claimed that he is the true owner of the subject properties and that petitioner merely holds the
same in trust for him. In support thereof, he presented the four checks that he issued in the name of petitioner for the
payment of the purchase price. He also reiterated that he has been in actual possession of the properties in question
from the time he had fully paid them up to the filing of the instant complaint.
In her Answer, petitioner claimed that she purchased the subject properties from BRC in 1997 pursuant to a Deed of
Sale under Pacto de Retro.8 Since the properties were not repurchased by the vendor-a-retro, a Deed of Absolute
Sale9 was executed in her favor for the two lots, covered by TCT No. PT-104090 and TCT No. PT-104091, dated May
25, 1999. By virtue of the said sale, TCT No. PT-111136 and TCT No. PT-111137 were issued in her name. Thereafter,
petitioner effected major renovations on the house constructed thereon.
Petitioner claimed that respondent volunteered to finance the renovation of the house on account of their special
relationship. Thereafter, respondent and his family occupied the said properties. However, when their relationship
turned sour, respondent surreptitiously filed an adverse claim over the subject properties with the Register of Deeds
of Pasig City, falsely claiming ownership thereof.
This prompted petitioner to file a complaint with the barangay against respondent for "Pagpapaalis sa tinitirahang
bahay o Ejectment" on June 9, 2006. However, despite due notice, respondent failed to attend the barangay
proceeding. Repeated demands made by petitioner upon respondent to vacate the properties in question proved futile.
Instead, respondent filed the instant complaint against petitioner before the lower court.
Ruling of the Regional Trial Court:
On November 5, 2010, the RFC rendered a Decision10 declaring respondent as the true and rightful owner of the
subject properties. The decretal portion thereof reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendant:
1. Declaring the plaintiff as the absolute and rightful owner of the parcels of land covered by Transfer Certificates
of Title Nos. PT-111136 and PT-111137;
2. Ordering the defendant to:
a. execute a Deed of Reconveyance over the subject properties in favor of the plaintiff;
b. furnish the plaintiff with the original and duplicate copies as well as the owner's duplicate of the above-
mentioned titles; and (sic)
c. pay attorney's fees of Php20,000.00 and litigation expenses of 10,000.00 (sic)
d. pay costs of suit
Counterclaims are dismissed for lack of merit.
The RTC found that the factual circumstances surrounding the present case showed that an implied trust existed
between respondent and petitioner. Respondent was able to prove by preponderance of evidence that he was the one
who paid the subject properties. The trial court also held that his actual possession of the properties in question from
the moment the purchase price had been paid in full is a clear proof of his ownership over the disputed properties.
While it is true that the sale was made through petitioner, she was merely a trustee of the subject properties, the true
and direct owner of the same being herein respondent.
Ruling of the Court of Appeals:
Dissatisfied with the RTC's ruling, petitioner elevated the case to the CA. On February 9, 2017, the appellate court
denied the appeal and affirmed the RTC Decision.12 Petitioner filed a motion for reconsideration, but it was denied in
a Resolution13 dated August 30, 2017.
Hence, the instant petition.
Petitioner maintains that respondent failed to establish that an implied trust was created between her and respondent.
She avers that by allowing her to enter into the contract of sale as the buyer, respondent clearly intended the subject
properties to be registered in her name and for her to be the real owner thereof on account of their special relationship.
Thus, he cannot now conveniently claim that his intention was otherwise.
Further, petitioner maintains that the payment of the purchase price of the subject properties, the association dues,
realty taxes and expenses for the improvements introduced thereon is not conclusive proof of respondent's ownership
of the said properties.
165
Lastly, petitioner insists that respondent miserably failed to assert his rights in the midst of petitioner's alleged open
defiance of their oral agreement that petitioner would merely pose as the buyer but the properties would later on be
reconveyed to respondent as the true owner thereof. His total silence and lack of objection to the acts of petitioner in
registering the properties in her name clearly indicated respondent's acquiescence thereto.
Issue:
Whether respondent had sufficiently proved that an implied trust was created between him and petitioner.
Our Ruling
We rule in the affirmative.
Before delving into the merits of the case, We point out that a cursory reading of the present Petition for Review
on Certiorari under Rule 45 of the Rules of Court reveals that it is a reiteration of factual issues and arguments raised
by petitioner in her appeal, which had already been fully passed upon by the appellate court. Whether or not the subject
properties were bought by respondent as the beneficial owner thereof is a question of fact which is beyond this Court's
jurisdiction under the present Petition for Review on Certiorari.
Questions of fact, which would require a re-evaluation of the evidence, are inappropriate under Rule 45 of the Rules of
Court.14 The jurisdiction of the Court under Rule 45, Section 115 is limited only to errors of law as the Court is not a
trier of facts. While Rule 45, Section 1 is not absolute, none of the recognized exceptions,16 which allow the Court to
review factual issues, is present in the instant case. Miro v. Vda. de Erederos17 is particularly instructive on this matter:
Parameters of a judicial review under a Rule 45 petition
a. Rule 45 petition is limited to questions of law
Before proceeding to the merits of the case, this Court deems it necessary to emphasize that a petition for review
under Rule 45 is limited only to questions of law. Factual questions are not the proper subject of an appeal
by certiorari. This Court will not review facts, as it is not our function to analyze or weigh all over again evidence
already considered in the proceedings below. As held in Diokno v. Hon. Cacdac, a reexamination of factual findings is
outside the province of a petition for review on certiorari, to wit:
It is aphoristic that a re-examination of factual findings cannot be done through a petition for review on certiorari under
Rule 45 of the Rules of Court because as earlier stated, this Court is not a trier of facts[.] x x x. The Supreme Court is
not duty-bound to analyze and weigh again the evidence considered in the proceedings below. This is already outside
the province of the instant Petition for Certiorari.
There is a question of law when the doubt or difference arises as to what the law is on a certain set of facts; a question
of fact, on the other hand, exists when the doubt or difference arises as to the truth or falsehood of the alleged facts.
Unless the case falls under any of the recognized exceptions, we are limited solely to the review of legal questions.
b. Rule 45 petition is limited to errors of the appellate court
Furthermore, the "errors" which we may review in a petition for review on certiorari are those of the C A, and not
directly those of the trial court or the quasi-judicial agency, tribunal, or officer which rendered the decision in the first
instance. It is imperative that we refrain from conducting further scrutiny of the findings of fact made by trial courts,
lest we convert this Court into a trier of facts. As held in Reman Recio v. Heirs of the Spouses Agueda and Maria
Altamirano, etc., et al., our review is limited only to the errors of law committed by the appellate court, to wit:
Under Rule 45 of the Rules of Court, jurisdiction is generally limited to the review of errors of law committed by the
appellate court. The Supreme Court is not obliged to review all over again the evidence which the parties adduced in
the court a quo. Of course, the general rule admits of exceptions, such as where die factual findings of the CA and
the trial court are conflicting or contradictory.18 (Citations omitted.)
Nevertheless, We find that petitioner was able to prove his ownership over the subject properties.
Trust is the legal relationship between one person having an equitable ownership in property and another person
owning the legal title to such property, the equitable ownership of the former entitling him to the performance of certain
duties and the exercise of certain powers by the latter,19
The Civil Code provides that an implied trust is created when a property is sold to one party but paid for by another
for the purpose of having beneficial interest in said property:
Article 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the
price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee,
while the latter is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or
illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there
is a gift in favor of the child.
Moreover, Article 1456 of the-Civil Code pertinently provides:
Art. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a
trustee of an implied trust for the benefit of the person from whom the property comes.
An implied trust arises, not from any presumed intention of the parties, but by operation of law in order to satisfy
the demands of justice and equity and to protect against unfair dealing or downright fraud.20
The burden of proving the existence of a trust is on the party asserting its existence, and such proof must be clear and
satisfactorily, show the existence of the trust and its elements. While implied trusts may be proven by oral evidence,
the evidence must be trustworthy and received by the courts with extreme caution, and should not be made to rest on
loose, equivocal or indefinite declarations. Trustworthy evidence is required because oral evidence can easily be
fabricated.21
In the case at bar, both the CA and the RTC declared that based on the evidence on record, an implied trust relation
arose between respondent and petitioner. Respondent had actually adduced, evidence to prove his intention to
purchase the subject properties by paying the purchase price thereof, through petitioner, with the attendant
expectation that petitioner would later on reconvey the same to him. This Court sees no cogent reason to revisit these
well-supported conclusions of the lower courts.
According to the RTC:
Plaintiff was able to prove that he bought the properties with his own money and he was also able to establish that
he issued checks (Exhibits P, Q, R & S) to complete the full payment of the purchase price of the properties amounting
to Fifteen Million (Php 15,000,000.00) Pesos. His clear ownership over the properties is confined by living in or in
(sic) actual possession of the properties from the very moment the properties were fully paid. And these pieces of
evidence were not rebutted by the defendant and in fact the latter admitted that it was the plaintiff who gave her the
money in purchasing the subject properties.22
Likewise, the CA ratiocinated, viz.:
166
From what We examined from the record, plaintiff-appellee sat on the witness stand to adduce testimonial and
documentary evidence, i.e., copies of the various checks issued by the plaintiff-appellee for payment of the realty;
receipts issued in the name of plaintiff-appellee for the materials purchased and used for the renovation of the house
on the subject property; payroll of the laborers showing the amounts plaintiff-appellee paid for the construction and
renovation thereof; his payment of real property taxes; and homeowner's dues.23
The preponderance of evidence established positive acts of respondent indicating, without doubt, that he considered
the subject properties as his exclusive properties. First, he entered into actual possession of the properties in question
immediately after his full payment of the purchase price and remained in possession thereof until the filing of the
Complaint before the lower court. Second, he spent millions for the renovation of the house constructed on the
premises. Finally, he had the tax declarations transferred in his name and faithfully paid the realty taxes thereon.
From the foregoing, this Court is convinced that an implied resulting trust existed between the parties. The pieces of
evidence presented demonstrate respondent's intention to acquire the subject properties for his own account and
benefit. The surrounding circumstances as to its acquisition speak of the intent that the equitable or beneficial
ownership of the properties should belong to respondent.
Indeed, it is settled that when the factual findings of the trial court are confirmed by the CA, said facts are final and
conclusive on this Court, unless the same are not supported by the evidence on record.24
Petitioner nevertheless insists that the purchase money for the properties was gratuitously given to her by respondent
on account of their special relationship as boyfriend and girlfriend. This is not so. On this score, We find the ruling of
the Court in the recent case of Spouses Devisfruto v. Greenfell25 worth mentioning, viz.:
As to the second issue, the parties admit that respondent supplied the purchase money for the properties. Thus,
assuming that neither an implied nor an express trust was created, the facts, as presented by petitioners, require
the application of the laws on donation. If, as insisted by petitioners, the purchase money for the properties was
gratuitously given to them, the law relevant to this transaction would be Article 748 of the Civil Code, which requires
that donations of personal property exceeding P5,000.00 must be in writing:
Article 748. The donation of a movable may be made orally or in writing. —
An oral donation requires the simultaneous delivery of the thing or of the document representing the right
donated.
If the value of the personal property donated exceeds five thousand pesos, the donation and the acceptance shall
be made in writing, otherwise, the donation shall be void.
If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and
this step shall be noted in both instruments.
In Carinan v. Spouses Cueto, where it was argued that the respondent therein had gratuitously paid the purchase
money for property as a donation, this Court noted that donations of purchase money must follow the formal
requirements mandated by law.
In order to sufficiently substantiate her claim that the money paid by the respondents was actually a donation,
Esperanza should have also submitted in court a copy of their written contract evincing such agreement. Article 748 of
the New Civil Code (NCC), which applies to donations of money, is explicit on this point as it reads:
Art. 748. The donation of a movable may be made orally or in writing. —
An oral donation requires the simultaneous delivery of the thing or of the document representing the right donated.
If the value of the personal property donated exceeds five thousand pesos, the donation and the acceptance shall
be made in writing. Otherwise, the donation shall be void.
As the Court ruled in Moreño-Lentfer v. Wolff, a donation must comply with the mandatory formal requirements set
forth by law for its validity. When the subject of donation is purchase money, Article 748 of the NCC is applicable.
Accordingly, the donation of money as well as its acceptance should be in writing. Otherwise, the donation is invalid
for non-compliance with the formal requisites prescribed by law.
Although petitioners repeatedly insisted that the purchase money for the properties was gratuitously given, it appears
that they did not, at any stage, present evidence that this donation complied with the formal requirements under Article
748 of the Civil Code. Thus, this Court sees no reason to consider this argument any further.26 (Citations omitted)
Similarly, since petitioner, in this case, insists that the purchase money for the properties was gratuitously furnished
by respondent, the formalities of a valid donation under Article 748 of the Civil Code should have been complied with,
failing which, there could be no donation to speak of. As in Carinan v. Spouses Cueto,27 petitioner never adduced
evidence in support of said argument. Thus, her claim of an alleged donation should necessarily fail.
All told, We find that the CA did not err when it rendered its assailed ruling.
WHEREFORE, the instant Petition for Review is DENIED for lack of merit. The Decision dated February 9, 2017 and
Resolution dated August 30, 2017 of the Court of Appeals in CA-G.R. CV No. 96678 are hereby AFFIRMED. Costs on
petitioner.
The Court further resolves to:
1. NOTE the MEMORANDUM dated October 20, 2020 by counsel for petitioner in compliance with the Resolution
dated September 7, 2020;
2. GRANT the MOTION TO ADMIT MEMORANDUM dated November 16, 2020 by counsel for respondent;
3. NOTE the aforesaid respondent's MEMORANDUM dated November 12, 2020 in compliance with the Resolution
dated September 7, 2020; and
4. GRANT the EARNEST MOTION TO ADMIT ADDENDUM AND FOR DUE CONSIDERATION THEREOF dated
January 21, 2021 by petitioner herself.
167
G.R. No. 165889 September 20, 2005
SACOBIA HILLS DEVELOPMENT CORPORATION and JAIME C. KOA, Petitioners,
vs.
ALLAN U. TY, Respondent.
This petition for review on certiorari1 assails the August 19, 2004 decision of the Court of Appeals in CA-G.R. CV No.
76987,2 which reversed and set aside the November 29, 2002 decision 3 of the Regional Trial Court of Manila, Branch
46, and its October 28, 2004 resolution4 denying reconsideration thereof.
The antecedent facts show that petitioner Sacobia Hills Development Corporation (Sacobia) is the developer of True
North Golf and Country Club (True North) located inside the Clark Special Economic Zone in Pampanga which boasts
of amenities that include a golf course, clubhouse, sports complex and several vacation villas.
On February 12, 1997, respondent Allan U. Ty wrote to Sacobia a letter expressing his intention to acquire one (1)
Class A share of True North and accordingly paid the reservation fee of P180,000.00 as evidenced by PCI Bank Check
No. 0038053.5
Through letters dated May 28, 1997 and July 4, 1997, Sacobia assured its shareholders that the development of True
North was proceeding on schedule; that the golf course would be playable by October 1999; that the Environmental
Clearance Certificate (ECC) by the Department of Environment and Natural Resources (DENR) as well as the Permit to
Sell from the Securities and Exchange Commission (SEC) should have been released by October 1997; and that their
registration deposits remained intact in an escrow account.6
On September 1, 1997, Sacobia approved the purchase application and membership of respondent for P600,000.00,
subject to certain terms and conditions. The notice of approval provided, inter alia:7
Terms and Conditions
1. Approval of an application to purchase golf/country club shares is subjected to the full payment of the total
purchase price. Should the buyer opt for the deferred payment scheme, approval is subject to our receipt of a down
payment of at least 30% and the balance payable in installments over a maximum of eleven (11) months from the
date of application, and covered by postdated cheques.
2. Your reserved share shall be considered withdrawn and may be deemed cancelled should you fail to settle your
obligation within fifteen (15) days from due date, or failure to cover the value of the postdated cheques upon their
maturity, or your failure to issue the required postdated cheques. In which case, we shall reserve the right to offer
the said shares to other interested parties. This also means forfeiture of 50% of the total amount you have already
paid.
3. We will undertake to execute the corresponding sales documents/ Deed of Absolute Sale covering the reserved
shares upon full payment of the total purchase price. The Certificate of Membership shall be issued thereafter.
However, on January 12, 1998, respondent notified Sacobia that he is rescinding the contract and sought refund of the
payments already made due to the latter’s failure to complete the project on time as represented.
In an effort to assure the respondent that the project would soon be operational, Sacobia wrote him a letter dated
March 10, 1998, stating that the DENR had issued the required ECC only on March 5, 1998, and that the golf course
would be ready for use by end of 1998.8
On April 3, 1998, Sacobia again wrote the respondent advising him that the 18-hole golf course would be fully
operational by summer of 1999. Sacobia also sought to collect from respondent the latter’s outstanding balance of
P190,909.08 which was covered by five (5) post dated checks.
Notwithstanding, respondent notified Sacobia on April 17, 1998 that he had stopped payment on the five (5) post dated
checks and reiterated his demand for the refund of his payments which amounted to P409,090.92.
On June 16, 1999, respondent sent Sacobia a letter formally rescinding the contract and demanding for the refund of
the P409,090.92 thus far paid by him.
By way of reply, Sacobia informed respondent that it had a no-refund policy, and that it had endorsed respondent to
Century Properties, Inc. for assistance on the resale of his share to third persons.
Thus, on July 21, 1999, respondent filed a complaint for rescission and damages before the SEC but the case was
eventually transferred to the Regional Trial Court of Manila, Branch 46, pursuant to Administrative Circular AM No. 00-
11-03.9
On April 13, 2002, the trial court personnel conducted an on-site ocular inspection and in their report, they made the
following observations:
... We went up and down the hills on board the golf cart, and have seen the entire golf course. The 9 holes area are
already operational and playable, we have seen the tee bank (mount soil) color coded flags, blue for regular golfers,
white for senior golfers and red for ladies golfers. We have seen all their playing areas which all appeared in order
except the main clubhouse which is undergoing finishing touches. Likewise the road leading to the clubhouse area is
undergoing pavement works and concreting.
We learned from our tour guide Mr. Gerry Zoleta, Site Supervisor, that the timetable in finishing all remaining things
(eg. Clubhouse and the road leading to it) to be done, are influenced or rather, hampered by the prevailing weather
condition. Such that when it rain, (which often happens in the area during afternoon or early morning) they cannot
really push thru with the construction due to the soil condition (easily eroded) and sloping terrain of the place. Except,
the clubhouse, all seem prim and proper for golf playing. In fact, according to Mr. Zoleta, the site has been operational
since January 2002. The first tournament was conducted on October 2000 and there were three tournaments already
took place in the area.
In summary, we found nothing amiss for one not to be able to play and enjoy golf to the fullest, except as earlier said
the clubhouse.10
On November 29, 2002, the trial court rendered judgment in favor of petitioners, the decretal portion of which reads:
WHEREFORE, the complaint is hereby dismissed without pronouncement as to costs.
If the plaintiff desires to continue with the acquisition of the share, he may do so by paying the balance of the
acquisition price of One Hundred Ninety Thousand Ninety Pesos and Ten Centavos (P190,090.10) without interest
within thirty (30) days from the finality of this decision, otherwise, he forfeits his payments.
The trial court found that the contract between the parties did not warrant that the golf course and clubhouse would
be completed within a certain period of time to entitle respondent to rescind. It also noted that the completion of the
project was subject to the issuance of an ECC and the approval by the SEC of the registration of non-proprietary golf
club shares, which is beyond Sacobia’s control.
The appellate court, in its decision dated August 19, 2004, disposed of the appeal as follows:
168
WHEREFORE, the appealed November 29, 2002 decision of the Regional Trial Court of Manila, Branch 46, is hereby
REVERSED and SET ASIDE, and a new one is hereby entered with this Court hereby CONFIRMING the RESCISSION
of the contract of purchase of one (1) Class A proprietary share of True North Golf and Country Club as elected choice
by plaintiff-appellant Ty, the aggrieved party, and hereby DIRECTING defendant-appellee SACOBIA to:
1) Refund to the plaintiff-appellant Allan U. Ty the amount of P409,090.20 and all payments made by him thus far
on the TRUE NORTH share, with legal interest of 12% per annum from July 21, 1999, the date of the filing of the
complaint with the SEC, until fully paid;
2) Return the five post-dated checks of the plaintiff-appellant amounting to P190,908.08;
3) Pay costs of the suit.
The Court of Appeals agreed with the trial court that Sacobia was in delay in the performance of its obligation to
respondent. As such, Ty could properly rescind the contract, or demand specific performance with damages, or demand
for damages alone. It held though that the failure of the DENR to issue the ECC on time is a valid ground to reduce the
damages claimed by Ty. It also ruled that Sacobia is estopped from asserting that there was no completion date for
the project as no less than its chairman announced the projected completion dates.
Petitioners’ motion for reconsideration was denied, hence the instant petition for review on certiorari which raises the
issue of whether the contract entered into by the parties may be validly rescinded under Article 1191 of the Civil Code.
Sacobia contends that it was not in breach of the contract as the Intent to Purchase, the Contract of Purchase, and the
Notice of Approval to Purchase Shares of True North, do not contain any specific date as to when the golf course and
country club would be completed. It argues that respondent should have known the risks involved in this kind of
project; the construction being contingent on the issuance of the ECC by the DENR and the payment of the buyers of
their share.
On the other hand, respondent claims that Sacobia’s arguments raise new matters which would warrant the reversal
of the decision rendered by the Court of Appeals. He insists that Sacobia failed to complete the project on time which
entitles him to rescind the contract in accordance with Article 1191 of the Civil Code. He further argues that the delay
in the completion of the project is clearly established by the fact that there have been no substantial work done on the
site, particularly on the clubhouse, despite the lapse of nearly 4-years from the issuance of the ECC on March 5, 1998.
The petition is meritorious.
In resolving the present controversy, the lower courts merely assumed that the delay in the completion of the golf
course was the decisive factor in determining the propriety or impropriety of rescinding the contract. Yet, confusion
could have been avoided had there been a more thorough scrutiny of the nature of the contract entered into by the
contending parties.
In the notice of approval, which embodies the terms and conditions of the agreement, Sacobia signified its intent to
retain the ownership of the property until such time that the respondent has fully paid the purchase price. This condition
precedent is characteristic of a contract to sell. The intention of the contracting parties is inferable from the following
provisions, to wit:
TERMS AND CONDITIONS
1. Approval of an application to purchase golf/country club shares is subjected to the full payment of
the total purchase price. Should the buyer opt for the deferred payment scheme, approval is subject to our
receipt of a down payment of at least 30% and the balance payable in installments over a maximum of eleven (11)
months from the date of application, and covered by postdated cheques.
2. Your reserved share shall be considered withdrawn and may be deemed cancelled should you fail to
settle your obligation within fifteen (15) days from due date, or failure to cover the value of the
 postdated cheques upon their maturity, or your failure to issue the required postdated cheques. In which
case, we shall reserve the right to offer the said shares to other interested parties. This also means forfeiture of
50% of the total amount you have already paid.
3. We shall undertake to execute the corresponding sales documents/Deed of Absolute Sale covering
the reserved shares upon full payment of the total purchase price. The Certificate of Membership shall
be issued thereafter.
Clearly, the approval of the application hinged on the full payment of the total purchase price. In fact, Sacobia explicitly
reserved the right to retain title over the share pending full satisfaction of the purchase price.
The notice of approval likewise stipulated that the reservation shall be deemed withdrawn or cancelled in case
respondent fails to settle his obligation within 15 days from the due date or cover the value of the checks upon their
maturity. Thus, Sacobia reserved the right to unilaterally rescind the contract in the event the respondent fails to
comply with his obligation of remitting the full purchase price within the deadline. In fact, Sacobia, after having
cancelled the agreement, can offer the share to other interested parties.
In addition, the execution of the deed of absolute sale and other pertinent documents shall be made only upon full
payment of the purchase price. The terms of the agreement between Sacobia and Ty can be deduced, not on a formal
document like a deed of sale, but from a series of correspondence and acts signifying the parties’ intention to enter
into a contract. The absence of a formal deed of conveyance is a strong indication that Sacobia did not intend to transfer
title until respondent shall have completely complied with his correlative obligation of paying the contact price.
Since the agreement between Sacobia and Ty is a contract to sell, the full payment of the purchase price partakes of
a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and ownership is
retained by the seller without further remedies by the buyer. In Cheng v. Genato,13 we explained the nature of a
contract to sell and its legal implications in this wise:
In a Contract to Sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not
a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring
an obligatory force. It is one where the happening of the event gives rise to an obligation. Thus, for its non-fulfillment
there will be no contract to speak of, the obligor having failed to perform the suspensive condition which enforces a
juridical relation. In fact with this circumstance, there can be no rescission of an obligation that is still non-existent,
the suspensive condition not having occurred as yet. Emphasis should be made that the breach contemplated in
Article 1191 of the New Civil Code is the obligor’s failure to comply with an obligation already extant, not a failure of
a condition to render binding that obligation.
In a contract to sell, the prospective seller does not consent to transfer ownership of the property to the buyer until
the happening of an event, which for present purposes, is the full payment of the purchase price. What the seller
agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the
purchase price is delivered to him. Upon the fulfillment of the suspensive condition, ownership will not automatically
transfer to the buyer although the property may have been previously delivered to him. The prospective seller still
has to convey title to the prospective buyer by entering into a contract of absolute sale.14
According to True North Payment Schedule,15 respondent’s checks dated from October 12, 1997 until January 12,
1998 were marked as stale. His failure to cover the value of the checks and by issuing a stop payment order effectively
abated the perfection of the contract. For it is understood that when a sale is made subject to a suspensive condition,
perfection is had only from the moment the condition is fulfilled.16
169
As shown, Ty did not pay the full purchase price which is his obligation under the contract to sell, therefore, it cannot
be said that Sacobia breached its obligation. No obligations arose on its part because respondent’s non-fulfillment of
the suspensive condition rendered the contract to sell ineffective and unperfected. Indeed, there can be no rescission
under Article 119117 of the Civil Code because until the happening of the condition, i.e. full payment of the contract
price, Sacobia’s obligation to deliver the title and object of the sale is not yet extant. A non-existent obligation cannot
be subject of rescission. Article 1191 speaks of obligations already existing, which may be rescinded in case one of the
obligors fails to comply with what is incumbent upon him.
As earlier discussed, the payment by Ty of the reservation fee as well as the issuance of the postdated checks is subject
to the condition that Sacobia was reserving title until full payment, which is the essence of a contract to sell. The
perfection of this kind of contract would give rise to two distinct obligations, namely, 1) the buyer’s obligation to fulfill
the suspensive condition, i.e. the full payment of the contract price as in the instant case, and, 2) the correlative
obligation of the seller to convey ownership upon compliance of the suspensive condition.
In the present case, respondent’s failure to fulfill this suspensive condition prevented the perfection of the contract to
sell. With an ineffective contract, Ty had not acquired the status of a shareholder but remained, at most, a prospective
investor. In the absence of a juridical tie between the parties, Ty cannot claim the rights and privileges accorded to
Sacobia’s full-fledged members and shareowners, including the full enjoyment of the amenities being offered.
Unfortunately for Ty, he cannot avail of rescission as envisioned by Article 1191 of the Civil Code. However, he can
withdraw his investment subject to the restrictions under the terms and conditions pertinent to a reneging investor.
Even assuming arguendo that the delay in the completion of the golf course and clubhouse was attributable to Sacobia,
respondent had not refuted to this Court’s satisfaction the trial court’s denial of such claim upon its finding that, among
other things, the parties did not warrant the completion of the project within a certain period of time.
As early as January 12, 1998, respondent had notified Sacobia of his intention to rescind the contract on the ground
that there was unreasonable delay in the completion of the golf course and clubhouse. Yet, evidence shows that even
prior thereto, or on May 28, 1997, Sacobia already informed its investors, including the respondent, that the full
completion of the project was expected by mid-1999. Patently, respondent’s claim is premature by one year and a half,
if reckoned from the expected time of completion as foreseen by Sacobia. Moreover, respondent was well aware of the
risk of delay in the completion of the project considering that he was apprised beforehand of such delay due to the
belated issuance of the proper documents.
It appears, however, that Sacobia is not really intent on cancelling Ty’s reservation. Even after it was notified by Ty
that he was intending to rescind the contract, and had in fact issued a stop-payment order, Sacobia merely deferred
the deposit of Ty’s checks in an effort to resolve the issue, instead of cancelling the reservation in accordance with the
terms of the notice of approval. Subsequently, it sought to collect from Ty his remaining obligations. It also referred
Ty to its marketing arm if Ty is so minded to sell his rights to third parties. To this extent, the trial court correctly
ordered Ty to pay the remaining balance if he so desires, otherwise, he forfeits half of his payments, pursuant to the
terms of the notice of approval.
WHEREFORE, the petition is GRANTED. The decision dated August 19, 2004 of the Court of Appeals in CA-G.R. CV
No. 76987 and its resolution dated October 28, 2004, are REVERSED and SET ASIDE. Respondent’s complaint for
rescission of contract and damages in Civil Case No. 01-99696 is DISMISSED. He is ORDERED to PAY to Sacobia
Hills Development Corporation the amount of Pesos: One Hundred Ninety Thousand Nine Hundred Nine and Eight
Centavos (P190,909.08) without interest within thirty (30) days from finality of this decision; otherwise, fifty percent
(50%) of his total payments shall be forfeited.
G.R. No. 200602 December 11, 2013
ACE FOODS, INC., Petitioner,
vs.
MICRO PACIFIC TECHNOLOGIES CO., LTD.1, Respondent.
Assailed in this petition for review on certiorari are the Decision dated October 21, 2011 and Resolution dated
2 3 4
February 8, 2012 of the Court of Appeals (CA) in CA-G.R. CV No. 89426 which reversed and set aside the
Decision5 dated February 28, 2007 of the Regional Trial Court of Makati, Branch 148 (RTC) in Civil Case No. 02-1248,
holding petitioner ACE Foods, Inc. (ACE Foods) liable to respondent Micro Pacific Technologies Co., Ltd. (MTCL) for the
payment of Cisco Routers and Frame Relay Products (subject products) amounting to ₱646,464.00 pursuant to a
perfected contract of sale.
The Facts
ACE Foods is a domestic corporation engaged in the trading and distribution of consumer goods in wholesale and retail
bases,6 while MTCL is one engaged in the supply of computer hardware and equipment. 7
On September 26, 2001, MTCL sent a letter-proposal8 for the delivery and sale of the subject products to be installed
at various offices of ACE Foods. Aside from the itemization of the products offered for sale, the said proposal further
provides for the following terms, viz.:9
TERMS : Thirty (30) days upon delivery
VALIDITY : Prices are based on current dollar rate and subject to changes without prior notice.
DELIVERY : Immediate delivery for items on stock, otherwise thirty (30) to forty-five days upon receipt of [Purchase
Order]
WARRANTY : One (1) year on parts and services. Accessories not included in warranty.
On October 29, 2001, ACE Foods accepted MTCL’s proposal and accordingly issued Purchase Order No.
10002310 (Purchase Order) for the subject products amounting to ₱646,464.00 (purchase price). Thereafter, or on
March 4, 2002, MTCL delivered the said products to ACE Foods as reflected in Invoice No. 7733 11 (Invoice Receipt).
The fine print of the invoice states, inter alia, that "[t]itle to sold property is reserved in MICROPACIFIC TECHNOLOGIES
CO., LTD. until full compliance of the terms and conditions of above and payment of the price" 12 (title reservation
stipulation). After delivery, the subject products were then installed and configured in ACE Foods’s premises. MTCL’s
demands against ACE Foods to pay the purchase price, however, remained unheeded. 13 Instead of paying the purchase
price, ACE Foods sent MTCL a Letter14 dated September 19, 2002, stating that it "ha[s] been returning the [subject
products] to [MTCL] thru [its] sales representative Mr. Mark Anteola who has agreed to pull out the said [products] but
had failed to do so up to now."
Eventually, or on October 16, 2002, ACE Foods lodged a Complaint 15 against MTCL before the RTC, praying that the
latter pull out from its premises the subject products since MTCL breached its "after delivery services" obligations to it,
particularly, to: (a) install and configure the subject products; (b) submit a cost benefit study to justify the purchase
of the subject products; and (c) train ACE Foods’s technicians on how to use and maintain the subject products. 16 ACE
Foods likewise claimed that the subject products MTCL delivered are defective and not working. 17
For its part, MTCL, in its Answer with Counterclaim, 18 maintained that it had duly complied with its obligations to ACE
Foods and that the subject products were in good working condition when they were delivered, installed and configured
in ACE Foods’s premises. Thereafter, MTCL even conducted a training course for ACE Foods’s
representatives/employees; MTCL, however, alleged that there was actually no agreement as to the purported "after
delivery services." Further, MTCL posited that ACE Foods refused and failed to pay the purchase price for the subject
170
products despite the latter’s use of the same for a period of nine (9) months. As such, MTCL prayed that ACE Foods be
compelled to pay the purchase price, as well as damages related to the transaction. 19
The RTC Ruling
On February 28, 2007, the RTC rendered a Decision, 20 directing MTCL to remove the subject products from ACE Foods’s
premises and pay actual damages and attorney fees in the amounts of ₱200,000.00 and ₱100,000.00, respectively.21
At the outset, it observed that the agreement between ACE Foods and MTCL is in the nature of a contract to sell. Its
conclusion was based on the fine print of the Invoice Receipt which expressly indicated that "title to sold property is
reserved in MICROPACIFIC TECHNOLOGIES CO., LTD. until full compliance of the terms and conditions of above and
payment of the price," noting further that in a contract to sell, the prospective seller explicitly reserves the transfer of
title to the prospective buyer, and said transfer is conditioned upon the full payment of the purchase price. 22 Thus,
notwithstanding the execution of the Purchase Order and the delivery and installation of the subject products at the
offices of ACE Foods, by express stipulation stated in the Invoice Receipt issued by MTCL and signed by ACE
Foods, i.e., the title reservation stipulation, it is still the former who holds title to the products until full payment of the
purchase price therefor. In this relation, it noted that the full payment of the price is a positive suspensive condition,
the non-payment of which prevents the obligation to sell on the part of the seller/vendor from materializing at
all.23 Since title remained with MTCL, the RTC therefore directed it to withdraw the subject products from ACE Foods’s
premises. Also, in view of the foregoing, the RTC found it unnecessary to delve into the allegations of breach since the
non-happening of the aforesaid suspensive condition ipso jure prevented the obligation to sell from arising.24
Dissatisfied, MTCL elevated the matter on appeal.25
The CA Ruling
In a Decision26 dated October 21, 2011, the CA reversed and set aside the RTC’s ruling, ordering ACE Foods to pay
MTCL the amount of ₱646,464.00, plus legal interest at the rate of 6% per annum to be computed from April 4, 2002,
and attorney’s fees amounting to ₱50,000.00.27
It found that the agreement between the parties is in the nature of a contract of sale, observing that the said contract
had been perfected from the time ACE Foods sent the Purchase Order to MTCL which, in turn, delivered the subject
products covered by the Invoice Receipt and subsequently installed and configured them in ACE Foods’s
premises.28 Thus, considering that MTCL had already complied with its obligation, ACE Foods’s corresponding obligation
arose and was then duty bound to pay the agreed purchase price within thirty (30) days from March 5, 2002. 29 In this
light, the CA concluded that it was erroneous for ACE Foods not to pay the purchase price therefor, despite its receipt
of the subject products, because its refusal to pay disregards the very essence of reciprocity in a contract of sale. 30 The
CA also dismissed ACE Foods’s claim regarding MTCL’s failure to perform its "after delivery services" obligations since
the letter-proposal, Purchase Order and Invoice Receipt do not reflect any agreement to that effect.31
Aggrieved, ACE Foods moved for reconsideration which was, however, denied in a Resolution 32
dated February 8,
2012, hence, this petition.
The Issue Before the Court
The essential issue in this case is whether ACE Foods should pay MTCL the purchase price for the subject products.
The Court’s Ruling
The petition lacks merit.
A contract is what the law defines it to be, taking into consideration its essential elements, and not what the contracting
parties call it.33 The real nature of a contract may be determined from the express terms of the written agreement and
from the contemporaneous and subsequent acts of the contracting parties. However, in the construction or
interpretation of an instrument, the intention of the parties is primordial and is to be pursued. The denomination
or title given by the parties in their contract is not conclusive of the nature of its contents. 34
The very essence of a contract of sale is the transfer of ownership in exchange for a price paid or
promised. 35 This may be gleaned from Article 1458 of the Civil Code which defines a contract of sale as follows:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to
deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional. (Emphasis supplied)
Corollary thereto, a contract of sale is classified as a consensual contract, which means that the sale is perfected by
mere consent. No particular form is required for its validity. Upon perfection of the contract, the parties may reciprocally
demand performance, i.e., the vendee may compel transfer of ownership of the object of the sale, and the vendor may
require the vendee to pay the thing sold.36
In contrast, a contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly
reserving the ownership of the property despite delivery thereof to the prospective buyer, binds himself to sell the
property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, i.e., the full payment of
the purchase price. A contract to sell may not even be considered as a conditional contract of sale where the seller
may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in
a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of
a contingent event which may or may not occur.37
In the present case, it has not been shown that the title reservation stipulation appearing in the Invoice Receipt had
been included or had subsequently modified or superseded the original agreement of the parties. The fact that the
Invoice Receipt was signed by a representative of ACE Foods does not, by and of itself, prove animus novandi since:
(a) it was not shown that the signatory was authorized by ACE Foods (the actual party to the transaction) to novate
the original agreement; (b) the signature only proves that the Invoice Receipt was received by a representative of ACE
Foods to show the fact of delivery; and (c) as matter of judicial notice, invoices are generally issued at the
consummation stage of the contract and not its perfection, and have been even treated as documents which are not
actionable per se, although they may prove sufficient delivery. 39 Thus, absent any clear indication that the title
reservation stipulation was actually agreed upon, the Court must deem the same to be a mere unilateral imposition on
the part of MTCL which has no effect on the nature of the parties’ original agreement as a contract of sale. Perforce,
the obligations arising thereto, among others, ACE Foods’s obligation to pay the purchase price as well as to accept
the delivery of the goods,40 remain enforceable and subsisting.1âwphi1
As a final point, it may not be amiss to state that the return of the subject products pursuant to a rescissory action41 is
neither warranted by ACE Foods’s claims of breach – either with respect to MTCL’s breach of its purported "after delivery
services" obligations or the defective condition of the products - since such claims were not adequately proven in this
case. The rule is clear: each party must prove his own affirmative allegation; one who asserts the affirmative of the
issue has the burden of presenting at the trial such amount of evidence required by law to obtain a favorable judgment,
which in civil cases, is by preponderance of evidence. 42 This, however, ACE Foods failed to observe as regards its
allegations of breach. Hence, the same cannot be sustained.
WHEREFORE, the petition is DENIED. Accordingly, the Decision dated October 21, 2011 and Resolution dated
February 8, 2012 of the Court of Appeals in CA-G.R. CV No. 89426 are hereby AFFIRMED.

In this case, the Court concurs with the CA that the parties have agreed to a contract of sale and not to a contract to
sell as adjudged by the RTC. Bearing in mind its consensual nature, a contract of sale had been perfected at the precise
moment ACE Foods, as evinced by its act of sending MTCL the Purchase Order, accepted the latter’s proposal to sell
the subject products in consideration of the purchase price of ₱646,464.00. From that point in time, the reciprocal
obligations of the parties – i.e., on the one hand, of MTCL to deliver the said products to ACE Foods, and, on the other
hand, of ACE Foods to pay the purchase price therefor within thirty (30) days from delivery – already arose and
consequently may be demanded. Article 1475 of the Civil Code makes this clear:
Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing
the form of contracts.

At this juncture, the Court must dispel the notion that the stipulation anent MTCL’s reservation of ownership of the
subject products as reflected in the Invoice Receipt, i.e., the title reservation stipulation, changed the complexion of
the transaction from a contract of sale into a contract to sell. Records are bereft of any showing that the said stipulation
novated the contract of sale between the parties which, to repeat, already existed at the precise moment ACE Foods
accepted MTCL’s proposal. To be sure, novation, in its broad concept, may either be extinctive or modificatory. It is
extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former;
it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory
agreement. In either case, however, novation is never presumed, and the animus novandi, whether totally or partially,
must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken.38

171
G.R. No. 193517 January 15, 2014
THE HEIRS OF VICTORINO SARILI, NAMELY: ISABEL A. SARILI,* MELENCIA** S. MAXIMO, ALBERTO A.
SARILI, IMELDA S. HIDALGO, all herein represented by CELSO A. SARILI, Petitioners,
vs.
PEDRO F. LAGROSA, represented in this act by his Attorney-in-Fact LOURDES LABIOS MOJICA, Respondent.
Assailed in this petition for review on Certiorari1 are the Decision2 dated May 20, 2010 and Resolution3 dated August
26, 2010 of the Court of Appeals (CA) in CA-G.R. CV No. 76258 which: (a) set aside the Decision4 dated May 27, 2002
of the Regional Trial Court of Caloocan City, Branch 131 (RTC) in Civil Case No. C-19152; (b) cancelled Transfer
Certificate of Title (TCT) No. 2622185 in the name of Victorino Sarili (Victorino) married to Isabel Amparo (Sps. Sarili);
(c) reinstated TCT No. 559796 in the name of respondent Pedro F. Lagrosa (respondent); and (d) awarded respondent
moral damages, attorney’s fees and litigation expenses.
On February 17, 2000, respondent, represented by his attorney-in-fact Lourdes Labios Mojica (Lourdes) via a special
power of attorney dated November 25, 19997 (November 25, 1999 SPA), filed a complaint8 against Sps. Sarili and the
Register of Deeds of Caloocan City (RD) before the RTC, alleging, among others, that he is the owner of a certain parcel
of land situated in Caloocan City covered by TCT No. 55979 (subject property) and has been religiously paying the real
estate taxes therefor since its acquisition on November 29, 1974. Respondent claimed that he is a resident of California,
USA, and that during his vacation in the Philippines, he discovered that a new certificate of title to the subject property
was issued by the RD in the name of Victorino married to Isabel Amparo (Isabel), i.e., TCT No. 262218, by virtue of a
falsified Deed of Absolute Sale9 dated February 16, 1978 (February 16, 1978 deed of sale) purportedly executed by
him and his wife, Amelia U. Lagrosa (Amelia). He averred that the falsification of the said deed of sale was a result of
the fraudulent, illegal, and malicious acts committed by Sps. Sarili and the RD in order to acquire the subject property
and, as such, prayed for the annulment of TCT No. 262218, and that Sps. Sarili deliver to him the possession of the
subject property, or, in the alternative, that Sps. Sarili and the RD jointly and severally pay him the amount of
₱1,000,000.00, including moral damages as well as attorney’s fees. 10
In their answer,11 Sps. Sarili maintained that they are innocent purchasers for value, having purchased the subject
property from Ramon B. Rodriguez (Ramon), who possessed and presented a Special Power of Attorney 12 (subject
SPA) to sell/dispose of the same, and, in such capacity, executed a Deed of Absolute Sale 13 dated November 20, 1992
(November 20, 1992 deed of sale) conveying the said property in their favor. In this relation, they denied any
participation in the preparation of the February 16, 1978 deed of sale, which may have been merely devised by the
"fixer" they hired to facilitate the issuance of the title in their names.14 Further, they interposed a counterclaim for
moral and exemplary damages, as well as attorney’s fees, for the filing of the baseless suit.15
During the pendency of the proceedings, Victorino passed away 16 and was substituted by his heirs, herein petitioners.17
The RTC Ruling
On May 27, 2002, the RTC rendered a Decision18 finding respondent’s signature on the subject SPA as "the same and
exact replica"19 of his signature in the November 25, 1999 SPA in favor of Lourdes.20 Thus, with Ramon’s authority
having been established, it declared the November 20, 1992 deed of sale 21 executed by the latter as "valid, genuine,
lawful and binding"22 and, as such, had validly conveyed the subject property in favor of Sps. Sarili. It further found
that respondent "acted with evident bad faith and malice" and was, therefore, held liable for moral and exemplary
damages.23 Aggrieved, respondent appealed to the CA.
The CA Ruling
172
In a Decision24 dated May 20, 2010, the CA granted respondent’s appeal and held that the RTC erred in its ruling since
the November 20, 1992 deed of sale, which the RTC found "as valid and genuine," was not the source document for
the transfer of the subject property and the issuance of TCT No. 262218 in the name of Sps. Sarili 25 but rather the
February 16, 1978 deed of sale, the fact of which may be gleaned from the Affidavit of Late Registration 26 executed by
Isabel (affidavit of Isabel). Further, it found that respondent w as "not only able to preponderate his claim over the
subject property, but [has] likewise proved that his and his wife’s signatures in the [February 16, 1978 deed of sale]
x x x were forged."27 "[A] comparison by the naked eye of the genuine signature of [respondent] found in his
[November 25, 1999 SPA] in favor of [Lourdes], and those of his falsified signatures in [the February 16, 1978 deed
of sale] and [the subject SPA] shows that they are not similar."28 It also observed that "[t]he testimony of [respondent]
denying the authenticity of his purported signature with respect to the [February 16, 1978 deed of sale] was not
rebutted x x x."29 In fine, the CA declared the deeds of sale dated February 16, 1978 and November 20, 1992, as well
as the subject SPA as void, and consequently ordered the RD to cancel TCT No. 262218 in the name of Victorino
married to Isabel, and consequently reinstate TCT No. 55979 in respondent’s name. Respondent’s claims for moral
damages and attorney’s fees/litigation expenses were also granted by the CA. 30
Dissatisfied, petitioners moved for reconsideration which was, however, denied in a Resolution 31 dated August 26,
2010, hence, the instant petition.
The Issues Before the Court
The main issue in this case is whether or not there was a valid conveyance of the subject property to Sps. Sarili. The
resolution of said issue would then determine, among others, whether or not: (a) TCT No. 262218 in the name of
Victorino married to Isabel should be annulled; and (b) TCT No. 55979 in respondent’s name should be reinstated.
The Court’s Ruling
The petition lacks merit.
Petitioners essentially argue that regardless of the fictitious February 16, 1978 deed of sale, there was still a valid
conveyance of the subject property to Sps. Sarili who relied on the authority of Ramos (as per the subject SPA) to sell
the same. They posit that the due execution of the subject SPA between respondent and Ramon and, subsequently,
the November 20, 1992 deed of sale between Victorino and Ramon were duly established facts and that from the
authenticity and genuineness of these documents, a valid conveyance of the subject land from respondent to Victorino
had leaned upon.32
The Court is not persuaded.
It is well-settled that even if the procurement of a certificate of title was tainted with fraud and misrepresentation, such
defective title may be the source of a completely legal and valid title in the hands of an innocent purchaser for value.
Where innocent third persons, relying on the correctness of the certificate of title thus issued, acquire rights over the
property, the court cannot disregard such rights and order the total cancellation of the certificate. The effect of such
an outright cancellation would be to impair public confidence in the certificate of title, for everyone dealing with property
registered under the Torrens system would have to inquire in every instance whether the title has been regularly or
irregularly issued. This is contrary to the evident purpose of the law. 33
The general rule is that every person dealing with registered land may safely rely on the correctness of the certificate
of title issued therefor and the law will in no way oblige him to go beyond the certificate to determine the condition of
the property. Where there is nothing in the certificate of title to indicate any cloud or vice in the ownership of the
property, or any encumbrance thereon, the purchaser is not required to explore further than what the Torrens Title
upon its face indicates in quest for any hidden defects or inchoate right that may subsequently defeat his right thereto.34
However, a higher degree of prudence is required from one who buys from a person who is not the registered owner,
although the land object of the transaction is registered. In such a case, the buyer is expected to examine not only the
certificate of title but all factual circumstances necessary for him to determine if there are any flaws in the title of the
transferor.35 The buyer also has the duty to ascertain the identity of the person with whom he is dealing with and the
latter’s legal authority to convey the property.36
The strength of the buyer’s inquiry on the seller’s capacity or legal authority to sell depends on the proof of capacity of
the seller. If the proof of capacity consists of a special power of attorney duly notarized, mere inspection of the face of
such public document already constitutes sufficient inquiry. If no such special power of attorney is provided or there is
one but there appears to be flaws in its notarial acknowledgment, mere inspection of the document will not do; the
buyer must show that his investigation went beyond the document and into the circumstances of its execution. 37
In the present case, it is undisputed that Sps. Sarili purchased the subject property from Ramos on the strength of the
latter’s ostensible authority to sell under the subject SPA. The said document, however, readily indicates flaws in its
notarial acknowledgment since the respondent’s community tax certificate (CTC) number was not indicated thereon.
Under the governing rule on notarial acknowledgments at that time, 38 i.e., Section 163(a) of Republic Act No. 7160,
otherwise known as the "Local Government Code of 1991," when an individual subject to the community tax
acknowledges any document before a notary public, it shall be the duty of the administering officer to require such
individual to exhibit the community tax certificate. 39 Despite this irregularity, however, Sps. Sarili failed to show that
they conducted an investigation beyond the subject SPA and into the circumstances of its execution as required by
prevailing jurisprudence. Hence, Sps. Sarili cannot be considered as innocent purchasers for value.
The defective notarization of the subject SPA also means that the said document should be treated as a private
document and thus examined under the parameters of Section 20, Rule 132 of the Rules of Court which provides that
"before any private document offered as authentic is received in evidence, its due execution and authenticity must be
proved either: (a) by anyone who saw the document executed or written; or (b) by evidence of the genuineness of the
signature or handwriting of the maker x x x." Settled is the rule that a defective notarization will strip the document of
its public character and reduce it to a private instrument, and the evidentiary standard of its validity shall be based on
preponderance of evidence.40
The due execution and authenticity of the subject SPA are of great significance in determining the validity of the sale
entered into by Victorino and Ramon since the latter only claims to be the agent of the purported seller (i.e.,
respondent). Article 1874 of the Civil Code provides that "[w]hen a sale of a piece of land or any interest therein is
through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void." In other words, if
the subject SPA was not proven to be duly executed and authentic, then it cannot be said that the foregoing requirement
had been complied with; hence, the sale would be void.
After a judicious review of the case, taking into consideration the divergent findings of the RTC and the CA on the
matter,41 the Court holds that the due execution and authenticity of the subject SPA were not sufficiently established
under Section 20, Rule 132 of the Rules of Court as above-cited.
While Ramon identified the signature of respondent on the subject SPA based on his alleged familiarity with the latter’s
signature,42 he, however, stated no basis for his identification of the signatures of respondent’s wife Amelia and the
witness, Evangeline F. Murral,43 and even failed to identify the other witness,44 who were also signatories to the said
document. In other words, no evidence was presented to authenticate the signatures of the other signatories of the
subject SPA outside from respondent.45
173
Besides, as the CA correctly observed, respondent’s signature appearing on the subject SPA is not similar 46 to his
genuine signature appearing in the November 25, 1999 SPA in favor of Lourdes, 47 especially the signature appearing
on the left margin of the first page.48
Unrebutted too is the testimony of respondent who, during trial, attested to the fact that he and his wife, Amelia, had
immigrated to the USA since 1968 and therefore could not have signed the subject SPA due to their absence.49
Further, records show that the notary public, Atty. Ramon S. Untalan, failed to justify why he did not require the
presentation of respondent’s CTC or any other competent proof of the identity of the person who appeared before him
to acknowledge the subject SPA as respondent’s free and voluntary act and deed despite the fact that he did not
personally know the latter and that he met him for the first time during the notarization.50 He merely relied on the
representations of the person before him51 and the bank officer who accompanied the latter to his office,52 and further
explained that the reason for the omission of the CTC was "because in [a] prior document, [respondent] has probably
given us already his residence certificate."53 This "prior document," was not, however, presented during the
proceedings below, nor the CTC number ever identified.
Thus, in light of the totality of evidence at hand, the Court agrees with the CA’s conclusion that respondent was able
to preponderate his claims of forgery against the subject SPA.54 In view of its invalidity, the November 20, 1992 sale
relied on by Sps. Sarili to prove their title to the subject property is therefore void.1âwphi1
At this juncture, it is well to note that it was, in fact, the February 16, 1978 deed of sale which – as the CA found –
was actually the source of the issuance of TCT No. 262218. Nonetheless, this document was admitted to be also a
forgery.55 Since Sps. Sarili’s claim over the subject property is based on forged documents, no valid title had been
transferred to them (and, in turn, to petitioners). Verily, when the instrument presented is forged, even if accompanied
by the owner’s duplicate certificate of title, the registered owner does not thereby lose his title, and neither does the
assignee in the forged deed acquire any right or title to the property. 56 Accordingly, TCT No. 262218 in the name of
Victorino married to Isabel should be annulled, while TCT No. 55979 in the name of respondent should be reinstated.
Anent the award of moral damages, suffice it to say that the dispute over the subject property had caused respondent
serious anxiety, mental anguish and sleepless nights, thereby justifying the aforesaid award. 57 Likewise, since
respondent was constrained to engage the services of counsel to file this suit and defend his interests, the awards of
attorney’s fees and litigation expenses are also sustained. 58
The Court, however, finds a need to remand the case to the court a quo in order to determine the rights and obligations
of the parties with respect to the house Sps. Sarili had built 59 on the subject property in bad faith in accordance with
Article 449 in relation to Articles 450, 451, 452, and the first paragraph of Article 546 of the Civil Code which
respectively read as follows:
ART. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown
without right to indemnity.
ART. 450. The owner of the land on which anything has been built, planted or sown in bad faith may demand the
demolition of the work, or that the planting or sowing be removed, in order to replace things in their former condition
at the expense of the person who built, planted or sowed; or he may compel the builder or planter to pay the price
of the land, and the sower the proper rent.
ART. 451. In the cases of the two preceding articles, the landowner is entitled to damages from the builder, planter
or sower.
ART. 452. The builder, planter or sower in bad faith is entitled to reimbursement for the necessary expenses of
preservation of the land.
xxxx
 ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain
the thing until he has been reimbursed therefor. (Emphases and underscoring supplied)
To be deemed a builder in good faith, it is essential that a person asserts title to the land on which he builds, i.e. , that
he be a possessor in concept of owner, and that he be unaware that there exists in his title or mode of acquisition any
flaw which invalidates it.60 Good faith is an intangible and abstract quality with no technical meaning or statutory
definition, and it encompasses, among other things, an honest belief, the absence of malice and the absence of design
to defraud or to seek an unconscionable advantage. It implies honesty of intention, and freedom from knowledge of
circumstances which ought to put the holder upon inquiry.61 As for Sps. Sarili, they knew – or at the very least, should
have known – from the very beginning that they were dealing with a person who possibly had no authority to sell the
subject property considering the palpable irregularity in the subject SPA’s acknowledgment. Yet, relying solely on said
document and without any further investigation on Ramos’s capacity to sell Sps. Sarili still chose to proceed with its
purchase and even built a house thereon. Based on the foregoing it cannot be seriously doubted that Sps. Sarili were
actually aware of a flaw or defect in their title or mode of acquisition and have consequently built the house on the
subject property in bad faith under legal contemplation. The case is therefore remanded to the court a quo for the
proper application of the above-cited Civil Code provisions.
WHEREFORE, the petition is DENIED. The Decision dated May 20, 2010 and Resolution dated August 26, 2010 of the
Court of Appeals in CA-G.R. CV No. 76258 are AFFIRMED. However the case is REMANDED to the court a quo for the
proper application of Article 449 in relation to Articles 450 451 452 and the first paragraph of Article 546 of the Civil
Code with respect to the house Spouses Victorino Sarili and Isabel Amparo had built on the subject property as herein
discussed.
174
G.R. No. 208462 December 10, 2014
SPOUSES CARLOS J. SUNTAY and ROSARIO R. SUNTAY, Petitioners,
vs.
KEYSER MERCANTILE, INC., Respondent.
On October 20, 1989, Eugenia Gocolay, chairperson and president of respondent Keyser Mercantile, Inc. (Keyser),
entered into a contract to sell with Bayfront Development Corporation (Baxfront) for the purchase on installment basis
of a condominium unit in Bayfront Tower Condominium located at A. Mabini Street, Malate, Manila. The subject of the
sale was Unit G of the said condominium project consisting of 163.59 square meters with the privilege to use two (2)
parking slots covered by Condominium Certificate of Title (CCT)No. 15802. This Contract to Sell3 was not registered
with the Register of Deeds ofManila. Thus, the subject unit remained in the name of Bayfront with a clean title.
On July 7, 1990, petitioner spouses Carlos and Rosario Suntay (Spouses Suntay) also purchased several condominium
units on the 4th floor of Bayfront Tower Condominium through another contract to sell. Despite payment of the full
purchase price, however, Bayfront failed to deliver the condominium units. When Bayfront failed to reimburse the full
purchase price, Spouses Suntay filed an action against it before the Housing and Land Use Regulatory Board (HLURB)
for violation of Presidential Decree (P.D.) No. 957 and P.D. No. 1344, rescission of contract, sum of money, and
damages.
In its decision, dated April 23 1994, the HLURB rescinded the Contract to Sell between Bayfront and Spouses Suntay
and ordered Bayfront to pay Spouses Suntay the total amount of 2,752,068.60 as purchase price with interest.
Consequently, on November 16, 1994, the HLURB issued a writ of execution. 4
Upon the application of Spouses Suntay, the Sheriffs of the Regional Trial Court (RTC) of Manila levied Bayfront’s titled
properties, including the subject condominium Unit G and the two parking slots. Considering that CCT No. 15802 was
still registered under Bayfront with a clean title, the sheriffs deemed it proper to be levied. The levy on execution 5 in
favor of Spouses Suntay was duly recorded in the Register of Deeds of Manila on January 18, 1995.
The auction sale was conducted on February 23, 1995, and Spouses Suntay were the highest bidder. Consequently, on
March 1, 1995, the Certificate of Sale6 in favor of Spouses Suntay was issued. This was duly annotated at the back of
CCT No. 15802 on April 7, 1995. Meanwhile, the Deed of Absolute Sale 7 between Bayfront and Keyser involving the
subject property was finally executed on November 9, 1995. The latter allegedly paid the full purchase price sometime
in 1991. When Keyser was about to register the said deed of absolute sale in February 1996, it discovered the Notice
of Levy and the Certificate of Sale annotated at the back of CCT No. 15802 in favor of Spouses Suntay. Nevertheless,
on March 12, 1996, the Register of Deeds cancelled the title of Bayfront and issued CCT No. 26474 8 in the name of
Keyser but carried over the annotation of the Suntays.9
Subsequently, the sheriff’s Final Deed of Sale10 was executed on April 16, 1996 in favor of the Suntays upon the
expiration of the one (1) year period of redemption from the earlier auction sale. CCT No. 26474 of Keyser was cancelled
and, thereafter, CCT No. 34250-A11 was issued in the name of Spouses Suntay.
Keyser then filed a complaint for annulment of auction sale and cancellation of notice of levy before the HLURB,
docketed as HLURB Case No. REM 032196-9152. In its decision, dated November 18, 1996, the HLURB ruled in favor
of Keyser. Spouses Suntay appealed the decision to the Office of the Presidentand later to the CA but both affirmed
the HLURB judgment.
On appeal before this Court, however, the HLURB decision was set aside. In its September 23, 2005 Decision, the Court
ruled that the HLURB had no jurisdiction over controversies between condominium unit owners and the issue of
ownership, possession or interest in the disputed condominium units could not be adjudicated by the HLURB due to its
limited jurisdiction under P.D. No. 957 and P.D. No. 1344.
RTC Ruling
Undaunted, on March 24, 2006, Keyser filed before the RTC of Manila a new complaint for annulment of auction sale,
writ of execution, declaration of nullity of title, and reconveyance of property with damages against Spouses Suntay,
docketed asCivil Case No. 06-114716. In their answer, Spouses Suntay denied the material allegations of the complaint
and interposed special and affirmative defenses of res judicata, forum shopping, prescription, and lack of cause of
action.
On October 19, 2009, the RTC rendered a Decision12 in favor of Keyser. It explained that when Spouses Suntay
registered the Certificate of Sale, the condominium unit was already registered in the name of Keyser. It also held that
the auction sale was irregular due to lack of posting and publication of notices. The RTC thus disposed:
WHEREFORE, premises considered, the Court hereby declares the auction sale as null and void, orders the Registry
of Deeds to reinstate the title of Keyser Mercantile Inc. and to pay the costs.
CA Ruling
Spouses Suntay elevated the decision to the CA. In its September 7, 2012 Decision, the CA denied the appealas it
found that Spouses Suntay did not acquire the subject property because at the time it was levied, Bayfront had already
sold the condominium unit to Keyser. Considering that the judgment debtor had no interest in the property, Spouses
Suntay, as purchasers at the auction sale, also acquired no interest. The decretal portion of the CA decision reads:
WHEREFORE,in view of the foregoing considerations, the Decision dated October 19, 2009 of the Regional Trial Court
(RTC) of Manila, Branch 21, in Civil Case No. 06-114716, is AFFIRMED.
Spouses Suntay filed a motion for reconsideration, but it was denied in the August 8, 2013 Resolution of the CA.
Hence, this petition, anchored on the following
STATEMENT OF ISSUES
I WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN SUSTAINING THE TRIAL COURT’S
DECISION BY NOT DISMISSINGTHE COMPLAINT CASE OF HEREIN RESPONDENT ON GROUND OF PRESCRIPTION OF
ACTIONS UNDER ARTICLE 1146 OFTHE CIVIL CODE OF THE PHILIPPINES, AS WELL AS, DUE TO ESTOPPEL BY
LACHES;
II WHETHER OR NOT THE COURT OFAPPEALS IN SUSTAINING THE DECISION OF THE COURT A QUO COMMITTED A
SERIOUS REVERSIBLE ERROR IN NOT APPLYING SECTION 52 OF P.D. 1529 AND ARTICLE 1544 OF THE CIVIL CODE
OF THE PHILIPPINES BY FINDING THAT HEREIN PETITIONERS HAVE BETTER RIGHTS OF OWNERSHIP OVER THE
SUBJECT CONDOMINIUM PROPERTY IN LITIGATION;
III WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN SUSTAINING THE TRIAL
COURT’S DECISION BY NOT DISMISSINGTHE COMPLAINT FOR LACK OF VALID AND LEGITIMATE CAUSEOF ACTION
OF HEREIN RESPONDENT AGAINST HEREIN PETITIONERS;
IV WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN SUSTAINING THE TRIAL
COURT’S DECISION BY NOT DISMISSING THE COMPLAINT ON GROUND OF FORUM SHOPPING;
V WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN SUSTAINING THE TRIAL
COURT’S DECISION BY NOT DISMISSING THE COMPLAINT [ON] GROUND OF RES JUDICATA;
175
VI WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN SUSTAINING THE TRIAL
COURT’S DECISION BY NOT AWARDING DAMAGES AND ATTORNEY’S FEES IN FAVOR OF HEREIN PETITIONERS.15
Spouses Suntay contend that res judicata existed. They assert that HLURB Case No. REM-032196-9152 involved the
same cause of action, parties and subject matter with Civil Case No. 06-114716 before the RTC. Considering that the
former case had been decided on appeal by this Court, then there was already res judicata in the RTC case. They
likewise claim the existence of forum shopping in the refiling of the case with the RTC for the second time on March
24, 2006.
Spouses Suntay also raise the issue of prescription because Article 1146 of the New Civil Code 16 provides that actions
resulting in injury prescribe after four (4) years. The resulting injury started on January 18, 1995. They argue that the
correct reckoning period was March 24, 2006 when Civil Case No. 06-114716 was filed in the RTC; and that a period
of more or less twelve (12) years had lapsed and the action had already prescribed. HLURB Case No. REM-032196-
9152 filed on March 21, 1996 should not have been considered to have tolled the prescriptive period because it had a
null and void judgment due to lack of jurisdiction.
Spouses Suntay argue that the CA erred in not applying Section 52 of P.D. No. 1529 and Article 1544 of the New Civil
Code. Their right as purchasers in a public action should havebeen preferred because their right acquired thereunder
retroacts to the date of registration of the Notice of Levy on January 18, 1995 and the subsequent auction sale on
February 23, 1995. They claim that their right over the subject property is superior over that of Keyser because they
purchased the subject property in a legitimate auction sale prior to Keyser’s registration of the deed of absolute sale.
Spouses Suntay also pray for moral, exemplary damages and attorney’s fees. They allegedly experienced mental
anguish, besmirched reputation, sleepless nights, and wounded feelings warranting moral damages. They contend that
exemplary damages should also be awarded in view of the reckless and wanton attitude of Keyser in instituting a
groundless action against them. Furthermore, Spouses Suntay were constrained to hire the services of counsel to
defend their right against a baseless action.
The Court’s Ruling
The petition is meritorious.
No res judicata, forum shopping and prescription in this case
As to the procedural matters, the Court finds that the grounds invoked by Spouses Suntay are inapplicable. First, the
defense of res judicata must fail. The doctrine of res judicatais a fundamental principle of law which precludes parties
from re-litigating issues actually litigated and determined by a prior and final judgment. 17 Res judicata constituting bar
by prior judgment occurs when the following requisites concur: (1) the former judgment is final; (2) it is rendered by
a court having jurisdiction over the subject matter and the parties; (3) it isa judgment or an order on the merits; and
(4) there is identity of parties, of subject matter, and of causes of action.18
The previous case instituted by Keyser in the HLURB was denied on appeal by this Court based on lack of jurisdiction.
Thus, the third requisite of res judicata is not present because the previous case was not adjudicated on the merits as
it was denied on jurisdictional grounds.
There is no forum shopping either in this case. To determine whether a party violated the rule against forum shopping,
the elements of litis pendentiamust be present, or the final judgment in one case amounts to res judicata in
another.19 Since there is no res judicata in this case, then there is no forum shopping either.
The defense of prescription is likewise unavailing. In Fulton Insurance Company v. Manila Railroad Company, 20 this
Court ruled that the filing of the first action interrupted the running of the period, and then declared that, at any rate,
the second action was filed within the balance of the remaining period. Applying Article 1155 of the New Civil Code in
that case,21 the interruption took place when the first action was filed in the Court of First Instance of Manila. The
interruption lasted during the pendency of the action until the order of dismissal for alleged lack of jurisdiction became
final.
In the present case, the prescriptive period was interrupted when HLURB Case No. REM-032196-9152 was filed on
March 21, 1996. The interruption lasted during the pendency of the action and until the judgment of dismissal due to
lack of jurisdiction was rendered on the September 23, 2005. Thus, the filing of Civil Case No. 06-114716 on March
24, 2006 was squarely within the prescriptive period of four (4) years.
Spouses Suntay properly relied on the Certificate of Title of Bayfront
Now, the Court proceeds to the substantial issues. This Court finds that the petition is meritorious applying the Torrens
System of Land Registration. The main purpose of the Torrens system is to avoid possible conflicts of title to real estate
and to facilitate transactions relative thereto by giving the public the right to rely upon the face of a Torrens certificate
of title and to dispense with the need of inquiring further, except when the party concerned has actual knowledge of
facts and circumstances that should impel a reasonably cautious man to makesuch further inquiry. Every person dealing
with a registered land may safely rely on the correctness of the certificate of title issued therefor and the law will in no
way oblige him to go beyond the certificate to determine the condition of the property.22
Again to stress, any buyer or mortgagee of realty covered by a Torrens certificate of title, in the absence of any
suspicion, is not obligated to look beyond the certificate to investigate the title of the seller appearing on the face of
the certificate. And, heis charged with notice only of such burdens and claims as are annotated on the title.23
In the case at bench, the subject property was registered land under the Torrens System covered by CCT No. 15802
with Bayfront as the registered owner. At the time that the Notice of Levy was annotated on January 18, 1995, the
title had no previous encumbrances and liens. Evidently, it was a clean title. The Certificate of Sale, pursuant to an
auction sale, was also annotated on April 7,1995, with Bayfront still as the registered owner.
It was only on March 12, 1996, almosta year later, that Keyser was able to register its Deed of Absolute Sale with
Bayfront. Prior to such date, Spouses Suntay appropriately relied on the Torrens title of Bayfront to enforce the latter’s
judgment debt.
Because "the act of registration is the operative act to convey or affect the land insofar as third persons are
concerned,"24 it follows that where there is nothing in the certificate of title toindicate any cloud or vice in the ownership
of the property, or any encumbrance thereon, the purchaser is not required to explore farther than what the Torrens
title upon its face indicates in quest for any hidden defect or inchoate right thatmay subsequently defeat his right
thereto. If the rule were otherwise, the efficacy and conclusiveness of the certificate of title which the Torrens system
seeks to insure would entirely be futile and nugatory. The public shall then be denied of its foremost motivation for
respecting and observing the Torrens system of registration. 25
When the notice of levy and certificate of sale were annotated on the title, the subject property was unoccupied and
no circumstance existed that might suggest to Spouses Suntay that it was owned by another individual. 26 Records
reveal that it was only later, on January 6, 1999, that the subject property was discovered by the sheriffs to be
padlocked.27 The administrator of the condominium did not even knowthe whereabouts of the alleged owner.28 To
reiterate, absent any peculiar circumstance, Spouses Suntay could not be required to disregard the clean title of
Bayfront and invest their time, effort and resources to scrutinize every square feet of the subject property. This Court
176
is convinced that Spouses Suntay properly relied on the genuineness and legitimacy of Bayfront’s Torrens certificate
of title when they had their liens annotated thereon.
Levy on execution is superior to the subsequent registration of the deed of absolute sale.
The CA stated in its decision that when the subject property was levied and subjected to an execution sale, Bayfront
had already sold it to Keyser. As such, Spouses Suntay no longer acquired the right over the subject property from
Bayfront because the latter, as judgment debtor, had nothing more to pass. 29 Earlier, the RTC held that at the time
Spouses Suntay were to register the auction sale, the subject property was already registered in Keyser’s name and,
thus, they were fully aware of the earlier sale. It was too late for Spouses Suntayto deny their knowledge of Keyser’s
title. The RTC also found the auction sale questionable due to the lack of posting and publication of notice.30
The Court disagrees with the lower courts. They had completely overlooked the significance of a levy on execution. The
doctrine is wellsettled that a levy on execution duly registered takes preference over a prior unregistered sale. Even if
the prior salewas subsequently registered before the sale in execution but after the levy was duly made, the validity
of the execution sale should be maintained because it retroacts to the date of the levy. Otherwise, the preference
created by the levy would be meaningless and illusory. 31
In this case, the contract to sell between Keyser and Bayfront was executed on October 20, 1989, but the deed of
absolute sale was only made on November 9, 1995 and registered on March 12, 1996. The Notice of Levy in favor of
Spouses Suntay was registered on January 18, 1995, while the Certificate of Sale on April 7, 1995, both dates clearly
ahead of Keyser’s registration of its Deed of Absolute Sale. Evidently, applying the doctrine of primus tempore, potior
jure(first in time, stronger in right), Spouses Suntay have a better right than Keyser.
In the case of Uy v. Spouses Medina32 which dealt with essentially the same issues, the Court wrote:
Considering that the sale was not registered earlier, the right of petitioner over the land became subordinate and
subject to the preference created over the earlier annotated levy in favor of Swift. The levy of execution registered
and annotated on September 1, 1998 takes precedence over the sale of the land to petitioner on February 16, 1997,
despite the subsequent registration on September 14, 1998 of the prior sale. Such preference in favor of the levy on
execution retroacts to the date of levy for to hold otherwise will render the preference nugatory and meaningless.
xxx
The settled rule is that levyon attachment, duly registered, takes preference over a prior unregistered sale. This
result is a necessary consequence of the fact that the property involved was duly covered by the Torrens system
which works under the fundamental principle that registration is the operative act which gives validity to the transfer
or creates a lien upon the land. The preference created by the levy on attachment is not diminished even by the
subsequent registration of the prior sale. This is so because an attachment is a proceeding in rem. It is against the
particular property, enforceable against the whole world. The attaching creditor acquires a specific lien on the
attached property which nothing can subsequently destroy except the very dissolution of the attachment or levy
itself. Such a proceeding, in effect, means that the property attached is an indebted thing and a virtual condemnation
of it to pay the owner’s debt. The lien continues until the debt is paid, or sale is had under execution issued on the
judgment, or until the judgment is satisfied, or the attachment discharged or vacated in some manner provided by
law.
The Court does not agree with the RTC either that the auction sale had glaring irregularities. Assisting Sheriff Rufo
Bernardo Jr., testifying as Keyser’s witness, categorically stated that they had posted notices of the auction sale and
had conducted the bidding.33 The documentary evidence of S pouses Suntay also shows that publication of the auction
sale was indeed complied with.34
No award of actual, moral and exemplary damages
Finally, the Court cannot grant the claim for damages by Spouses Suntay. The filing alone of a civil action should not
be a ground for an award of moral damages in the same way that a clearly unfounded civil action is not among the
grounds for moral damages.35 Spouses Suntay failed to show a compelling reason to warrant the award of moral
damages aside from their bare allegations.
As to the award of exemplary damages, Article 2229 of the New Civil Code provides that exemplary damages may be
imposed by way of example or correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages.36 The claimant, however, must first establish his right to moral, temperate, liquidated or
compensatory damages. In this case, because Spouses Suntay failed to prove their entitlement to moral or
compensatory damages, there could be no award of exemplary damages.
Spouses Suntay are not entitled to attorney's fees either.1âwphi1 The settled rule is that no premium should be placed
on the right to litigate and that not every winning party is entitled to an automatic grant of attorney's fees.37
WHEREFORE, the petition is GRANTED. The September 7, 2012 Decision and the August 8, 2013 Resolution of the
Court of Appeals (CA) in CA-G.R. CV No. 94677 are REVERSED and SET ASIDE. Accordingly, the Court hereby declares
the auction sale as valid and binding on Keyser Mercantile, Inc. and all other subsequent registrants.
177
G.R. No. 214752, March 09, 2016
EQUITABLE SAVINGS BANK, (NOW KNOWN AS THE MERGED ENTITY "BDO UNIBANK, INC.") Petitioner, v.
ROSALINDA C. PALCES, Respondent.
Assailed in this petition for review on certiorari1 are the Decision2 dated February 13, 2014 and the Resolution3 dated
October 8, 2014 of the Court of Appeals (CA) in CA-G.R. CV No. 96008, which partially affirmed the Decision4 dated
May 20, 2010 of the Regional Trial Court of Pasay City, Branch 114 (RTC) in Civil Case No. 07-03 86-CFM and ordered
petitioner Equitable Savings Bank, now BDO Unibank, Inc. (petitioner), to reimburse respondent Rosalinda C. Palces
(respondent) the installments she made in March 2007 amounting to P103,000.00.
On August 15, 2005, respondent purchased a Hyundai Starex GRX Jumbo (subject vehicle) through a loan granted by
petitioner in the amount of P1,196,100.00. In connection therewith, respondent executed a Promissory' Note with
Chattel Mortgage5 in favor of petitioner, stating, inter alia, that: (a) respondent shall pay petitioner the aforesaid
amount in 36-monthly installments of P33,225.00 per month, beginning September 18, 2005 and every 18th of the
month thereafter until full payment of the loan; (b) respondent's default in paying any installment renders the
remaining balance due and payable; and (c) respondent's failure to pay any installments shall give petitioner the right
to declare the entire obligation due and payable and may likewise, at its option, x x x foreclose this mortgage; or file
an ordinary civil action for collection and/or such other action or proceedings as may be allowed under the law.6
From September 18, 2005 to December 21, 2006, respondent paid the monthly installment of P33,225.00 per month.
However, she failed to pay the monthly installments in January and February 2007, thereby triggering the acceleration
clause contained in the Promissory Note with Chattel Mortgage7 and prompting petitioner to send a demand letter8
dated February 22, 2007 to compel respondent to pay the remaining balance of the loan in the amount of P664,500.00.9
As the demand went unheeded, petitioner filed on March 7, 2007 the instant Complaint for Recovery of Possession with
Replevin with Alternative Prayer for Sum of Money and Damages10 against respondent before the RTC, praying that
the court a quo: (a) issue a writ of replevin ordering the seizure of the subject vehicle and its delivery to petitioner; or
(b) in the alternative as when the recovery of the subject vehicle cannot be effected, to render judgment ordering
respondent to pay the remaining balance of the loan, including penalties, charges, and other costs appurtenant
thereto.11
Pending respondent's answer, summons12 and a writ of replevin13 were issued and served to her personally on April
26, 2007, and later on, a Sheriffs Return14 dated May 8, 2007 was submitted as proof of the implementation of such
writ.15
In her defense,16 while admitting that she indeed defaulted on her installments for January and February 2007,
respondent nevertheless insisted that she called petitioner regarding such delay in payment and spoke to a bank officer,
a certain Rodrigo Dumagpi, who gave his consent thereto. Respondent then maintained that in order to update her
installment payments, she paid petitioner the amounts of P70,000.00 on March 8, 2007 and P33,000.00 on March 20,
2007, or a total of P103,000.00. Despite the aforesaid payments, respondent was surprised when petitioner filed the
instant complaint, resulting in the sheriff taking possession of the subject vehicle.17
The RTC Ruling
In a Decision18 dated May 20, 2010, the RTC ruled in petitioner's favor and, accordingly, confirmed petitioner's right
and possession over the subject vehicle and ordered respondent to pay the former the amount of P15,000.00 as
attorney's fees as well as the costs of suit.19
The RTC found that respondent indeed defaulted on her installment payments in January and February 2007, thus,
rendering the entire balance of the loan amounting to P664,500.00 due and demandable. In this relation, the RTC
observed that although respondent made actual payments of the installments due, such payments were all late and
irregular, and the same were not enough to fully pay her outstanding obligation, considering that petitioner had already
declared the entire balance of the loan due and demandable. However, since the writ of replevin over the subject
vehicle had already been implemented, the RTC merely confirmed petitioner's right to possess the same and ruled that
it is no longer entitled to its alternative prayer, i.e., the payment of the remaining balance of the loan, including
penalties, charges, and other costs appurtenant thereto.20
Respondent moved for reconsideration,21 but was denied in an Order22 dated August 31, 2010. Dissatisfied,
respondent appealed23 to the CA, contending that petitioner acted in bad faith in seeking to recover more than what
is due by attempting to collect the balance of the loan and, at the same time, recover the subject vehicle.24
The CA Ruling
In a Decision25 dated February 13, 2014, the CA affirmed the RTC ruling with modification: (a) ordering petitioner to
return the amount of P103,000.00 to respondent; and (b) deleting the award of attorney's fees in favor of petitioner
for lack of sufficient basis. It held that while respondent was indeed liable to petitioner under the Promissory Note with
Chattel Mortgage, petitioner should not have accepted respondent's late partial payments in the aggregate amount of
P103,000.00. In this regard, the CA opined that by choosing to recover the subject vehicle via a writ of replevin,
petitioner already waived its right to recover any unpaid installments, pursuant to Article 1484 of the Civil Code. As
such, the CA concluded that respondent is entitled to the recovery of the aforesaid amount.26
Aggrieved, petitioner moved for partial reconsideration27 - specifically praying for the setting aside of the order to
return the amount of P103,000.00 to respondent - which was, however, denied in a Resolution28 dated October 8,
2014; hence, this petition.
The Issues Before The Court
The issues raised for the Court's resolution are whether or not the CA correctly: (a) ordered petitioner to return to
respondent the amount of P103,000.00 representing the latter's late installment payments; and (b) deleted the award
of attorney's fees in favor of petitioner.
The Court's Ruling
The petition is partly meritorious.
Citing Article 1484 of the Civil Code, specifically paragraph 3 thereof, the CA ruled that petitioner had already waived
its right to recover any unpaid installments when it sought - and was granted - a writ of replevin in order to regain
possession of the subject vehicle. As such, petitioner is no longer entitled to receive respondent's late partial payments
in the aggregate amount of P103,000.00.
The CA is mistaken on this point.
Article 1484 of the Civil Code, which governs the sale of personal properties in installments, states in full:
Article 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may
exercise any of the following remedies:
(1) Exact fulfilment of the obligation, should the vendee fail to pay;
178
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to
pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover
any unpaid balance of the price. Any agreement to the contrary shall be void. (Emphases and underscoring supplied)
In this case, there was no vendor-vendee relationship between respondent and petitioner. A judicious perusal of the
records would reveal that respondent never bought the subject vehicle from petitioner but from a third party, and
merely sought financing from petitioner for its full purchase price. In order to document the loan transaction between
petitioner and respondent, a Promissory Note with Chattel Mortgage29 dated August 18, 2005 was executed wherein,
inter alia, respondent acknowledged her indebtedness to petitioner in the amount of P1,196,100.00 and placed the
subject vehicle as a security for the loan.30 Indubitably, a loan contract with the accessory chattel mortgage contract
- and not a contract of sale of personal property in installments - was entered into by the parties with respondent
standing as the debtor-mortgagor and petitioner as the creditor-mortgagee. Therefore, the conclusion of the CA that
Article 1484 finds application in this case is misplaced, and thus, must be set aside.
The Promissory Note with Chattel Mortgage subject of this case expressly stipulated, among others, that: (a) monthly
installments shall be paid on due date without prior notice or demand;31 (b) in case of default, the total unpaid principal
sum plus the agreed charges shall become immediately due and payable;32 and (c) the mortgagor's default will allow
the mortgagee to exercise the remedies available to it under the law. In light of the foregoing provisions, petitioner is
justified in filing his Complaint33 before the RTC seeking for either the recovery of possession of the subject vehicle so
that it can exercise its rights as a mortgagee, i.e., to conduct foreclosure proceedings over said vehicle;34 or in the
event that the subject vehicle cannot be recovered, to compel respondent to pay the outstanding balance of her loan.35
Since it is undisputed that petitioner had regained possession of the subject vehicle, it is only appropriate that
foreclosure proceedings, if none yet has been conducted/concluded, be commenced in accordance with the provisions
of Act No. 1508,36 otherwise known as "The Chattel Mortgage Law," as intended. Otherwise, respondent will be placed
in an unjust position where she is deprived of possession of the subject vehicle while her outstanding debt remains
unpaid, either in full or in part, all to the undue advantage of petitioner - a situation which law and equity will never
permit.37
Further, there is nothing in the Promissory Note with Chattel Mortgage that bars petitioner from receiving any late
partial payments from respondent. If at all, petitioner's acceptance of respondent's late partial payments in the
aggregate amount of P103,000.00 will only operate to reduce her outstanding obligation to petitioner from P664,500.00
to P561,500.00. Such a reduction in respondent's outstanding obligation should be accounted for when petitioner
conducts the impending foreclosure sale of the subject vehicle. Once such foreclosure sale has been made, the proceeds
thereof should be applied to the reduced amount of respondent's outstanding obligation, and the excess of said
proceeds, if any, should be returned to her.38
In sum, the CA erred in ordering petitioner to return the amount of P103,000.00 to respondent. In view of petitioner's
prayer for and subsequent possession of the subject vehicle in preparation for its foreclosure, it is only proper that
petitioner be ordered to commence foreclosure proceedings, if none yet has been conducted/concluded, over the vehicle
in accordance with the provisions of the Chattel Mortgage Law, i.e., within thirty (30) days from the finality of this
Decision.39
Finally, anent the issue of attorney's fees, it is settled that attorney's fees "cannot be recovered as part of damages
because of the policy that no premium should be placed on the right to litigate. They are not to be awarded every time
a party wins a suit. The power of the court to award attorney's fees under Article 220840 of the Civil Code demands
factual, legal, and equitable justification. Even when a claimant is compelled to litigate with third persons or to incur
expenses to protect his rights, still, attorney's fees may not be awarded where no sufficient showing of bad faith could
be reflected in a party's persistence in a case other than an erroneous conviction of the righteousness of his cause."41
In this case, suffice it to say that the CA correctly ruled that the award of attorney's fees and costs of suit should be G.R. No. 202358 November 27, 2013
deleted for lack of sufficient basis.chanrobleslaw
GATCHALIAN REALTY, INC., Petitioner,
WHEREFORE, the petition is PARTLY GRANTED. The Decision dated February 13, 2014 and the Resolution dated October vs.
8, 2014 of the Court of Appeals in CA-G.R. CV No. 96008 are hereby SET ASIDE. In case foreclosure proceedings on EVELYN M. ANGELES, Respondent.
the subject chattel mortgage has not yet been conducted/concluded, petitioner Equitable Savings Bank, now BDO
Unibank, Inc., is ORDERED to commence foreclosure proceedings on the subject vehicle in accordance with the Chattel The Case G.R. No. 202358 is a petition for review1 assailing the Decision2 promulgated on 11 November 2011 as well
Mortgage Law, i.e., within thirty (30) days from the finality of this Decision. The proceeds therefrom should be applied as the Resolution3 promulgated on 19 June 2012 by the Court of Appeals (CA) in CA-G.R. SP No. 105964. The CA
to the reduced outstanding balance of respondent Rosalinda C. Palces in the amount of P561,500.00, and the excess, reversed and set aside the 8 October 2008 Order4 of Branch 197 of the Regional Trial Court of Las Piñas City (RTC) in
if any, should be returned to her. Civil Case No. LP-07-0143. The CA also dismissed the unlawful detainer case filed by Gatchalian Realty, Inc. GRI)
against Evelyn M. Angeles (Angeles).

The Metropolitan Trial Court (MeTC) rendered on 28 February 2006 a decision5 in Civil Case No. 6809 in favor of GRI
and against Angeles. In its decision6 dated 13 February 2008, the RTC set aside the decision of the MeTC and dismissed
the ejectment case filed by GRI against Angeles. The RTC reversed itself in an Order 7 dated 17 June 2008, and affirmed
with modification the decision of the MeTC. The RTC denied Angeles’ Motion for Reconsideration in an Order dated 8
October 2008.

The Facts

On 28 December 1994, [Angeles] purchased a house (under Contract to Sell No. 2272) and lot (under Contract to Sell
No. 2271) from [GRI] valued at Seven Hundred Fifty Thousand Pesos (Php 750,000.00) and Four Hundred Fifty
Thousand Pesos (Php 450,000.00), respectively, with twenty-four percent (24%) interest per annum to be paid by
installment within a period of ten years.

The house and lot were delivered to [Angeles] in 1995. Nonetheless, under the contracts to sell executed between the
parties, [GRI] retained ownership of the property until full payment of the purchase price.

After sometime, [Angeles] failed to satisfy her monthly installments with [GRI]. [Angeles] was only able to pay thirty-
five (35) installments for Contract to Sell No. 2271 and forty-eight (48) installments for Contract to Sell No. 2272.
According to [GRI], [Angeles] was given at least twelve (12) notices for payment in a span of three (3) years but she
still failed to settle her account despite receipt of said notices and without any valid reason. [Angeles] was again given
more time to pay her dues and likewise furnished with three (3) notices reminding her to pay her outstanding balance
with warning of impending legal action and/or rescission of the contracts, but to no avail. After giving a total of fifty-
one (51) months grace period for both contracts and in consideration of the continued disregard of the demands of
[GRI], [Angeles] was served with a notice of notarial rescission dated 11 September 2003 by registered mail which she
allegedly received on 19 September 2003 as evidenced by a registry return receipt.

Consequently [Angeles] was furnished by [GRI] with a demand letter dated 26 September 2003 demanding her to pay
the amount of One Hundred Twelve Thousand Three Hundred Four Pesos and Forty Two Centavos (Php 112,304.42)
as outstanding reasonable rentals for her use and occupation of the house and lot as of August 2003 and to vacate the
same. She was informed in said letter that the fifty percent (50%) refundable amount that she is entitled to has already
been deducted with the reasonable value for the use of the properties or the reasonable rentals she incurred during
such period that she was not able to pay the installments due her. After deducting the rentals from the refundable
amount, she still had a balance of One Hundred Twelve Thousand Three Hundred Four Pesos and Forty Two Centavos
(Php 112,304.42) which she was required to settle within fifteen (15) days from receipt of the letter.

179
Allegedly, [Angeles] subsequently sent postal money orders through registered mail to [GRI]. In a letter dated 27
January 2004 [Angeles] was notified by [GRI] of its receipt of a postal money order sent by [Angeles]. More so, she
was requested to notify [GRI] of the purpose of the payment. [Angeles] was informed that if the postal money order
was for her monthly amortization, the same will not be accepted and she was likewise requested to pick it up from
[GRI’s] office. On 29 January 2004, another mail with a postal money order was sent by [Angeles] to [GRI]. In her 6
February 2004 letter, [GRI] was informed that the postal money orders were supposed to be payments for her monthly
amortization. Again, in its 8 February 2004 letter, it was reiterated by [GRI] that the postal money orders will only be
accepted if the same will serve as payment of her outstanding rentals and not as monthly amortization. Four (4) more
postal money orders were sent by [Angeles] by registered mail to [GRI].
For her continued failure to satisfy her obligations with [GRI] and her refusal to vacate the house and lot, [GRI] filed a
complaint for unlawful detainer against [Angeles] on 11 November 2003.8
The MeTC’s Ruling
The MeTC of Branch 79, Las Piñas City ruled in favor of GRI. The MeTC determined that the case was for an unlawful
detainer, and thus assumed jurisdiction. The MeTC further held that the facts show that GRI was able to establish the
validity of the rescission:
A careful scrutiny of the evidence presented by both parties regarding payments made clearly show that [Angeles]
defaulted in the payment of the monthly installments due. Repeated notices and warnings were given to her but she
still and failed to update her account (Exhibits "E" to "E-1" and "G" to "G-2", [GRI’s] Position Paper). This is a clear
violation of the condition of their contracts. An ample grace period, i.e., 51 months, was granted to her by [GRI] but
she still failed to pay the whole amount due as provided in paragraph 6 of the contracts and Section 3 of RA 6552.
[Angeles] has been in arrears beyond the grace period provided under the contracts and law. The last payment received
by [GRI], which represents [Angeles’] 35th installment, was made in July 2002. On the other hand, the last payment,
which represents her 48th installment, [was] received [by GRI] in April 1999. Thus, [GRI], as seller, can terminate or
rescind the contract by giving her the notice of notarial rescission of the contracts. The notarial rescission of the
contracts was executed on September 26, 2003 and served upon [Angeles]. 9
Although the MeTC agreed with Angeles that her total payment is already more than the contracted amount, the MeTC
found that Angeles did not pay the monthly amortizations in accordance with the terms of the contract. Interests and
penalties accumulated and increased the amount due. Furthermore, the MeTC found the monthly rentals imposed by
GRI reasonable and within the range of the prevailing rental rates in the vicinity. Compensation between GRI and
Angeles legally took effect in accordance with Article 129010 of the Civil Code. The MeTC ruled that GRI is entitled to
₱1,060,896.39 by way of reasonable rental fee less ₱574,148.40 as of May 2005, thus leaving a balance of ₱486,747.99
plus the amount accruing until Angeles finally vacates the subject premises.
The dispositive portion of the MeTC’s Decision reads:
WHEREFORE, in view of the foregoing, the Court renders judgment for [GRI] and against [Angeles] and all persons
claiming rights under her, as follows:
1. Ordering [Angeles] and all persons claiming rights under her to immediately vacate the property subject of this
case situated at Blk. 3, Lot 8, Lanzones St., Phase 3-C, Gatchalian Subdivision, Las Piñas City and surrender
possession thereof to [GRI];
2. Ordering the encashment of the Postal Money Order (PMO) in the total amount of Php 120,000.00 in favor of
[GRI];
3. Ordering [Angeles] to pay [GRI] the outstanding amount of Php 486,747.99 representing reasonable monthly
rentals of the subject premises as of May 2005 less the amount of the postal money orders [worth] Php 120,000.00
and all the monthly rentals that will accrue until she vacates the subject premises and have possession thereof
180
turned over to [GRI], plus the interests due thereon at the rate of twelve percent (12%) per annum from the time
of extra-judicial demand;
4. Ordering [Angeles] to pay [GRI] the amount of Php 20,000.00 as attorney’s fees; and
5. Costs of suit.
[Angeles’] counterclaims are hereby dismissed for lack of merit.
On 21 March 2006, Angeles filed a notice of appeal with the MeTC. A week later, on 28 March 2006, Angeles filed a
motion to dismiss based on lack of jurisdiction. The Las Piñas RTC denied Angeles’ motion to dismiss in an order dated
28 July 2006.
Angeles also filed on 2 October 2006 a Petition for Certiorari with Immediate Issuance of Temporary Restraining Order
and Injunction, which was docketed as SCA Case No. 06-008.12 On 3 May 2007, Branch 201 of the Las Piñas RTC
dismissed Angeles’ Petition for Certiorari for forum-shopping.13
GRI, on the other hand, filed a Motion for Execution Pending Appeal. A Writ of Execution Pending Appeal was issued in
favor of GRI on 25 August 2006, and the properties were turned over to GRI on 10 October 2006.14
The RTC’s Ruling
Angeles’ appeal before Branch 197 of the Las Piñas RTC initially produced a result favorable to her. The RTC found that
the case was one for ejectment. As an ejectment court, the MeTC’s jurisdiction is limited only to the issue of possession
and does not include the title or ownership of the properties in question.
The RTC pointed out that Republic Act No. 6552 (R.A. 6552) provides that the non-payment by the buyer of an
installment prevents the obligation of the seller to convey title from acquiring binding force. Moreover, cancellation of
the contract to sell may be done outside the court when the buyer agrees to the cancellation. In the present case,
Angeles denied knowledge of GRI’s notice of cancellation. Cancellation of the contract must be done in accordance with
Section 3 of R.A. 6552, which requires a notarial act of rescission and refund to the buyer of the cash surrender value
of the payments on the properties. Thus, GRI cannot insist on compliance with Section 3(b) of R.A. 6552 by applying
Angeles’ cash surrender value to the rentals of the properties after Angeles failed to pay the installments due. Contrary
to the MeTC’s ruling, there was no legal compensation between GRI and Angeles. The RTC ruled:
There being no valid cancellation of the Contract to Sell, this Court finds merit in the appeal filed by [Angeles] and
REVERSES the decision of the court a quo. This Court recognized [Angeles’] right to continue occupying the property
subject of the Contract to Sell.
WHEREFORE, premises considered, the decision of the lower court is hereby SET ASIDE and the ejectment case filed
by [GRI] is hereby DISMISSED.
GRI filed a Motion for Reconsideration. The RTC issued an Order on 17 June 2008 which ruled that GRI had complied
with the provisions of R.A. 6552, and had refunded the cash surrender value to Angeles upon its cancellation of the
contract to sell when it deducted the amount of the cash surrender value from rentals due on the subject properties.
The RTC relied on this Court’s ruling in Pilar Development Corporation v. Spouses Villar. 16 The RTC ruled:
Applying the above Pilar ruling in the present case, the cash surrender value of the payments made by [Angeles] shall
be applied to the rentals that accrued on the property occupied by [Angeles], which rental is fixed by this Court in the
amount of seven thousand pesos per month (₱7,000.00). The total rental payment due to Gatchalian Realty Inc. is six
hundred twenty three thousand (₱623,000.00) counted from June 1999 to October 2006. According to R.A. 6552, the
cash surrender value, which in this case is equivalent to fifty percent (50%) of the total payment made by [Angeles],
should be returned to her by [GRI] upon cancellation of the contract to sell on September 11, 2003. Admittedly no
such return was ever made by [GRI]. Thus, the cash surrender value, which in this case is equivalent to ₱182,094.48
for Contract to Sell No. 2271 and ₱392,053.92 for Contract to Sell No. 2272 or a total cash surrender value of
₱574,148.40 should be deducted from the rental payment or award owing to [Angeles].
WHEREFORE, premises considered, the Motion for Reconsideration is hereby GRANTED. The earlier decision dated
February 13, 2008 is SET ASIDE and the decision of the court a quo is MODIFIED to wit:
1. Ordering [Angeles] and all persons claiming rights under her to immediately vacate the property subject of this
case situated at Blk. 3, Lot 8, Lanzones St., Phase 3-C, Gatchalian Subdivision, Las Piñas City and surrender
possession thereof to [GRI];
2. Ordering the encashment of the Postal Money Order (PMO) in the total amount of Php 120,000.00 in favor of
[GRI];
3. Ordering defendant, Evelyn M. Angeles, to pay plaintiff, Gatchalian Realty Inc., the outstanding rental amount
of forty eight thousand eight hundred fifty one pesos and sixty centavos (₱48,851.60) and legal interest of six
percent (6%) per annum, until the above amount is paid;
4. Ordering [Angeles] to pay [GRI] the amount of Php 20,000.00 as attorney’s fees; and
5. Costs of suit.
The Court of Appeals’ Ruling
The CA dismissed GRI’s complaint for unlawful detainer, and reversed and set aside the RTC’s decision. Although the
CA ruled that Angeles received the notice of notarial rescission, it ruled that the actual cancellation of the contract
between the parties did not take place because GRI failed to refund to Angeles the cash surrender value. The CA denied
GRI’s motion for reconsideration.
GRI filed the present petition for review before this Court on 10 August 2012.
The Issues
GRI assigned the following errors of the CA:
The court a quo committed reversible error when it declared that there was no refund of the cash surrender value in
favor of [Angeles] pursuant to R.A. No. 6552; and
The court a quo erred in holding that the actual cancellation of the contract between the parties did not take place. 18
The Court’s Ruling
GRI’s petition has no merit. We affirm the ruling of the CA with modification.
Validity of GRI’s Cancellation of the Contracts
Republic Act No. 6552, also known as the Maceda Law, or the Realty Installment Buyer Protection Act, has the declared
public policy of "protecting buyers of real estate on installment payments against onerous and oppressive
conditions."19 Section 3 of R.A. 6552 provides for the rights of a buyer who has paid at least two years of installments
but defaults in the payment of succeeding installments. Section 3 reads:
Section 3. In all transactions or contracts involving the sale or financing of real estate on installment payments,
including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants
under Republic Act Numbered Thirty-eight hundred forty-four, as amended by Republic Act Numbered Sixty-three
hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following
rights in case he defaults in the payment of succeeding installments:
181
(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him
which is hereby fixed at the rate of one month grace period for every one year of installment payments made:
Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and
its extensions, if any.
(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on
the property equivalent to fifty per cent of the total payments made, and, after five years of installments, an
additional five per cent every year but not to exceed ninety per cent of the total payments made: Provided, That
the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash
surrender value to the buyer.
Down payments, deposits or options on the contract shall be included in the computation of the total number of
installment payments made.
The sixth paragraph of the contracts between Angeles and GRI similarly provides:
SIXTH - Should the VENDEE/S fail to pay due any monthly installment the VENDOR shall have the right to cancel this
Contract and resell the lot/s subject matter of this contract to another buyer, provided, however, that where the
VENDEE/S has/have already paid at least two years of installments, the VENDEE/S will have the right:
a) to pay without additional interest, the installments in arrears within the total grace period earned by
him/her/them which is hereby fixed at the rate of one (1) month grace period for every one (1) year of installment
payment made, but this right can be exercised by the VENDEE/S only once in every five (5) years of the life of this
contract and its extension, if any, and
b) if the contract is cancelled, the VENDOR shall refund to the VENDEE/S the cash surrender value of the payments
made on the lot/s equivalent to fifty per cent (50%) of the total payments made, and after five (5) years of
installment, an additional five per cent (5%) every year but not to exceed ninety per cent (90%) of the total
payments made; Provided, that the actual cancellation of the contract shall take place after thirty (30) days from
the receipt by the VENDEE/S of the notice of cancellation or the demand for rescission of the contract by a notarial
act upon full payment of the cash surrender value to the VENDEE/S; where, however, the VENDEE/S has/have paid
less than two (2) years of installments, the VENDOR shall give the VENDEE/S [a] grace period of sixty (60) days
from the date the installment became due; and if the VENDEE/S fail/s to pay the installment due after the expiration
of the grace period, the VENDOR may cancel the contract after thirty (30) days from receipt by the VENDEE/S of
the notice of cancellation or the demand for rescission of the contract by a notarial act; and in case of cancellation
and/or rescission of this contract, all improvements on the lot/s above-described shall be forfeited in favor of the
VENDOR, and in this connection, the VENDEE/S obligate/s himself/herself/themselves to peacefully vacate the
premises mentioned above without necessity of notice or demand by the VENDOR.20
We examine GRI’s compliance with the requirements of R.A. 6552, as it insists that it extended to Angeles
considerations that are beyond what the law provides.
Grace Period
It should be noted that Section 3 of R.A. 6552 and paragraph six of Contract Nos. 2271 and 2272, speak of "two years
of installments." The basis for computation of the term refers to the installments that correspond to the number of
months of payments, and not to the number of months that the contract is in effect as well as any grace period that
has been given. Both the law and the contracts thus prevent any buyer who has not been diligent in paying his monthly
installments from unduly claiming the rights provided in Section 3 of R.A. 6552.
The MeTC, the RTC, and the CA all found that Angeles was able to pay 35 installments for the lot (Contract No. 2271)
and 48 installments for the house (Contract No. 2272).21 Angeles thus made installment payments for less than three
years on the lot, and exactly four years on the house.
Section 3(a) of R.A. 6552 provides that the total grace period corresponds to one month for every one year of
installment payments made, provided that the buyer may exercise this right only once in every five years of the life of
the contract and its extensions. The buyer’s failure to pay the installments due at the expiration of the grace period
allows the seller to cancel the contract after 30 days from the buyer’s receipt of the notice of cancellation or demand
for rescission of the contract by a notarial act. Paragraph 6(a) of the contract gave Angeles the same rights.
Both the RTC and the CA found that GRI gave Angeles an accumulated grace period of 51 months. 22 This extension
went beyond what was provided in R.A. 6552 and in their contracts.
Receipt of the Notice of Notarial Rescission
The registry return of the registered mail is prima facie proof of the facts indicated therein.23 Angeles failed to present
contrary evidence to rebut this presumption with competent and proper evidence. To establish its claim of service of
the notarial rescission upon Angeles, GRI presented the affidavit of its liaison officer Fortunato Gumahad, 24 the registry
receipt from the Greenhills Post Office,25 and the registry return receipt.26 We affirm the CA’s ruling that GRI was able
to substantiate its claim that it served Angeles the notarial rescission sent through registered mail in accordance with
the requirements of R.A. 6552.
Amount of the Cash Surrender Value
days after the date of its notice of notarial rescission, and 46 days after the date of its demand for rentals. For her
part, Angeles sent GRI postal money orders in the total amount of ₱120,000. 35
The MeTC ruled that it was proper for GRI to compensate the rentals due from Angeles’ occupation of the property
from the cash surrender value due to Angeles from GRI. The MeTC stated that compensation legally took effect in
accordance with Article 1290 of the Civil Code, which reads: "When all the requisites mentioned in Article 1279 are
present, compensation takes effect by operation of law and extinguishes both debts to the concurrent amount, even
though the creditors and debtors are not aware of the compensation." In turn, Article 1279 of the Civil Code provides:
In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the
other;
(2) That both debts consist of a sum of money, or if the things due are consumable, they be of the same kind, and
also of the same quality if the latter has been stated;
(3) That the two debts are due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.
However, it was error for the MeTC to apply Article 1279 as there was nothing in the contracts which provided for the
amount of rentals in case the buyer defaults in her installment payments. The rentals due to GRI were not liquidated.
GRI, in its letter to Angeles dated 26 September 2003, unilaterally imposed the amount of rentals, as well as an annual
10% increase:
PERIOD COVERED NO. OF RENTALS AMOUNT DUE
MONTHS PER MONTH

GRI claims that it gave Angeles a refund of the cash surrender value of both the house and the lot in the total amount June to December 1999 7 11,000.00 77,000.00
of ₱574,148.40 when it deducted the amount of the cash surrender value from the amount of rentals due. January to December 2000 12 12,100.00 145,200.00

January to December 2001 12 13,310.00 159,720.00

For paying more than two years of installments on the lot, Angeles was entitled to receive cash surrender value of her
payments on the lot equivalent to fifty per cent of the total payments made. This right is provided by Section 3(b) of January to December 2002 12 14,641.00 175,692.02 [sic]
R.A. 6552, as well as paragraph 6(b) of the contract. Out of the contract price of ₱450,000, Angeles paid GRI a total
of ₱364,188.96 consisting of ₱135,000 as downpayment and ₱229,188.96 as installments and penalties. 27 The cash January to August 2003 8 16,105.10 128,840.80
surrender value of Angeles’ payments on the lot amounted to ₱182,094.48.28
TOTAL AMOUNT DUE: P 686,452.82 [sic]36

For the same reasons, Angeles was also entitled to receive cash surrender value of the payments on the house
equivalent to fifty per cent of the total payments made. Out of the contract price of ₱750,000, Angeles paid GRI a total
of ₱784,107.84 consisting of ₱165,000 as downpayment and ₱619,107.84 as installments and penalties. 29 The cash
surrender value of Angeles’ payments on the house amounted to ₱392,053.92. 30
Actual Cancellation of the Contracts
There was no actual cancellation of the contracts because of GRI’s failure to actually refund the cash surrender value
to Angeles.
Cancellation of the contracts for the house and lot was contained in a notice of notarial rescission dated 11 September
2003.31 The registry return receipts show that Angeles received this notice on 19 September 2003. 32 GRI’s demand for
rentals on the properties, where GRI offset Angeles’ accrued rentals by the refundable cash surrender value, was
contained in another letter dated 26 September 2003.33 The registry return receipts show that Angeles received this
letter on 29 September 2003.34 GRI filed a complaint for unlawful detainer against Angeles on 11 November 2003, 61
We cannot subscribe to GRI’s view that it merely followed our ruling in Pilar Development Corporation v. Spouses
Villar37 (Pilar) when it deducted the cash surrender value from the rentals due. In Pilar, the developer also failed to
refund the cash surrender value to the defaulting buyer when it cancelled the Contract to Sell through a Notice of
Cancellation. It was this Court, and not the developer, that deducted the amount of the cash surrender value from the
accrued rentals. Moreover, the developer in Pilar did not unilaterally impose rentals. It was the MeTC that decreed the
amount of monthly rent. Neither did the developer unilaterally reduce the accrued rentals by the refundable cash
surrender value. The cancellation of the contract took effect only by virtue of this Court’s judgment because of the
developer’s failure to return the cash surrender value.
This was how we ruled in Pilar:
According to R.A. 6552, the cash surrender value, which in this case is equivalent to fifty percent (50%) of the total
payment made by the respondent spouses, should be returned to them by the petitioner upon the cancellation of the
contract to sell on August 31, 1998 for the cancellation to take effect. Admittedly, no such return was ever made by
petitioner. Thus, the said cash surrender value is hereby ordered deducted from the award owing to the petitioner
based on the MeTC judgment, and cancellation takes effect by virtue of this judgment.

182
Finally, as regards the award of ₱7,000.00/month as rental payment decreed by the MeTC for the use of the property
in question from the time the respondent spouses obtained possession thereof up to the time that its actual possession
is surrendered or restored to the petitioner, the Court finds the same just and equitable to prevent the respondent
spouses, who breached their contract to sell, from unjustly enriching themselves at the expense of the petitioner which,
for all legal intents and purposes, never ceased to be the owner of the same property because of the respondents’ non-
fulfillment of the indispensable condition of full payment of the purchase price, as embodied in the parties’ contract to
sell. However, as earlier explained, this sum is to be reduced by the cash surrender value of the payments so far made
by the spouses, and the resulting net amount still owing as accrued rentals shall be subject to legal interest from
finality of this Decision up to the time of actual payment thereof. 38
Mandatory Twin Requirements: Notarized Notice of Cancellation and Refund of Cash Surrender Value
This Court has been consistent in ruling that a valid and effective cancellation under R.A. 6552 must comply with the
mandatory twin requirements of a notarized notice of cancellation and a refund of the cash surrender value.
In Olympia Housing, Inc. v. Panasiatic Travel Corp., 39 we ruled that the notarial act of rescission must be accompanied
by the refund of the cash surrender value.
x x x The actual cancellation of the contract can only be deemed to take place upon the expiry of a 30-day period
following the receipt by the buyer of the notice of cancellation or demand for rescission by a notarial act and the full
payment of the cash surrender value.
In Pagtalunan v. Dela Cruz Vda. De Manzano, 40 we ruled that there is no valid cancellation of the Contract to Sell in
the absence of a refund of the cash surrender value. We stated that:
x x x Sec. 3 (b) of R.A. No. 6552 requires refund of the cash surrender value of the payments on the property to the
buyer before cancellation of the contract. The provision does not provide a different requirement for contracts to sell
which allow possession of the property by the buyer upon execution of the contract like the instant case. Hence,
petitioner cannot insist on compliance with the requirement by assuming that the cash surrender value payable to
the buyer had been applied to rentals of the property after respondent failed to pay the installments due. (Emphasis
supplied)
Remedies of the Buyer in the Absence of a Valid Cancellation of a Contract to Sell
In view of the absence of a valid cancellation, the Contract to Sell between GRI and Angeles remains valid and
subsisting. Apart from Olympia and Pagtalunan, we are guided by our rulings in Active Realty & Development Corp. v.
Daroya41 (Active) and Associated Marine Officers and Seamen’s Union of the Philippines PTGWO-ITF v.
Decena42 (Associated).
In Olympia , this Court dismissed the complaint for recovery of possession for having been prematurely filed without
complying with the mandate of R.A. 6552. We ordered the defaulting buyer to pay the developer the balance as of the
date of the filing of the complaint plus 18% interest per annum computed from the day after the date of the filing of
the complaint, but within 60 days from the receipt of a copy of the decision. Upon payment, the developer shall issue
the corresponding certificate of title in favor of the defaulting buyer. If the defaulting buyer fails to pay the full amount,
then the defaulting buyer shall vacate the subject property without need of demand and all payments will be charged
as rentals to the property. There was no award for damages and attorney’s fees, and no costs were charged to the
parties.
183
In Pagtalunan, this Court dismissed the complaint for unlawful detainer. We also ordered the defaulting buyer to pay
the developer the balance of the purchase price plus interest at 6% per annum from the date of filing of the complaint
up to the finality of judgment, and thereafter, at the rate of 12% per annum. Upon payment, the developer shall issue
a Deed of Absolute Sale of the subject property and deliver the corresponding certificate of title in favor of the defaulting
buyer. If the defaulting buyer fails to pay the full amount within 60 days from finality of the decision, then the defaulting
buyer should vacate the subject property without need of demand and all payments will be charged as rentals to the
property. No costs were charged to the parties.
In Active, this Court held that the Contract to Sell between the parties remained valid because of the developer’s failure
to send a notarized notice of cancellation and to refund the cash surrender value. The defaulting buyer thus had the
right to offer to pay the balance of the purchase price, and the developer had no choice but to accept payment.
However, the defaulting buyer was unable to exercise this right because the developer sold the subject lot. This Court
ordered the developer to refund to the defaulting buyer the actual value of the lot with 12% interest per annum
computed from the date of the filing of the complaint until fully paid, or to deliver a substitute lot at the option of the
defaulting buyer.
In Associated, this Court dismissed the complaint for unlawful detainer. We held that the Contract to Sell between the
parties remained valid because the developer failed to send to the defaulting buyer a notarized notice of cancellation
and to refund the cash surrender value. We ordered the MeTC to conduct a hearing within 30 days from receipt of the
decision to determine the unpaid balance of the full value of the subject properties as well as the current reasonable
amount of rent for the subject properties. We ordered the defaulting buyer to pay, within 60 days from the trial court’s
determination of the amounts, the unpaid balance of the full value of the subject properties with interest at 6% per
annum computed from the date of sending of the notice of final demand up to the date of actual payment. Upon
payment, we ordered the developer to execute a Deed of Absolute Sale over the subject properties and deliver the
transfer certificate of title to the defaulting buyer. In case of failure to pay within the mandated 60-day period, we
ordered the defaulting buyer to immediately vacate the premises without need for further demand. The developer
should also pay the defaulting buyer the cash surrender value, and the contract should be deemed cancelled 30 days
after the defaulting buyer’s receipt of the full payment of the cash surrender value. If the defaulting buyer failed to
vacate the premises, he should be charged reasonable rental in the amount determined by the trial court.
We observe that this case has, from the institution of the complaint, been pending with the courts for 10 years. As
both parties prayed for the issuance of reliefs that are just and equitable under the premises, and in the exercise of
our discretion, we resolve to dispose of this case in an equitable manner. Considering that GRI did not validly rescind
Contracts to Sell Nos. 2271 and 2272, Angeles has two options:
1. The option to pay, within 60 days from the MeTC’s determination of the proper amounts, the unpaid balance of
the full value of the purchase price of the subject properties plus interest at 6% per annum from 11 November 2003,
the date of filing of the complaint, up to the finality of this Decision, and thereafter, at the rate of 6% per
annum.43 Upon payment of the full amount, GRI shall immediately execute Deeds of Absolute Sale over the subject
properties and deliver the corresponding transfer certificate of title to Angeles.
In the event that the subject properties are no longer available, GRI should offer substitute properties of equal
value.1âwphi1 Acceptance of the suitability of the substitute properties is Angeles’ sole prerogative. Should Angeles
refuse the substitute properties, GRI shall refund to Angeles the actual value of the subject properties with 6%
interest per annum44 computed from 11 November 2003, the date of the filing of the complaint, until fully paid; and
2. The option to accept from GRI ₱574,148.40, the cash surrender value of the subject properties, with interest at
6% per annum,45 computed from 11 November 2003, the date of the filing of the complaint, until fully paid. Contracts
to Sell Nos. 2271 and 2272 shall be deemed cancelled 30 days after Angeles’ receipt of GRI’s full payment of the
 cash surrender value. No rent is further charged upon Angeles as GRI already had possession of the subject properties
on 10 October 2006.
WHEREFORE, we DENY the petition. The Decision of the Court of Appeals in CA-G.R. SP No. 105964 promulgated on
11 November 2011 and the Resolution promulgated on 19 June 2012 are AFFIRMED with MODIFICATIONS.
1. The Metropolitan Trial Court of Las Piñas City is directed to conduct a hearing within a maximum period of 30 days
from finality of this Decision to (1) determine Evelyn M. Angeles’ unpaid balance on Contracts to Sell Nos. 2271 and
2272; and (2) the actual value of the subject properties as of 11 November 2003.
2. Evelyn M. Angeles shall notify the Metropolitan Trial Court of Las Piñas City and Gatchalian Realty, Inc. within a
maximum period of 60 days from the Metropolitan Trial Court of Las Piñas City’s determination of the unpaid balance
whether she will pay the unpaid balance or accept the cash surrender value.
Should Evelyn M. Angeles choose to pay the unpaid balance, she shall pay, within 60 days from the MeTC’s
determination of the proper amounts, the unpaid balance of the full value of the purchase price of the subject properties
plus interest at 6% per annum from 11 November 2003, the date of filing of the complaint, up to the finality of this
Decision, and thereafter, at the rate of 6% per annum. Upon payment of the full amount, GRI shall immediately execute
Deeds of Absolute Sale over the subject properties and deliver the corresponding transfer certificate of title to Angeles.
In the event that the subject properties are no longer available, GRI should offer substitute properties of equal value.
Should Angeles refuse the substitute properties, GRI shall refund to Angeles the actual value of the subject properties
with 6 interest per annum computed from November 2003, the date of the filing of the complaint, until fully paid.
Should Evelyn M. Angeles choose to accept payment of the cash surrender value, she shall receive from GRI
₱574,148.40 with interest at 6 per annum computed from November 2003, the date of the filing of the complaint, until
fully paid. Contracts to Sell Nos. 2271 and 2272 shall be deemed cancelled 30 days after Angeles' receipt of GRI's full
payment of the cash surrender value. No rent is further charged upon Evelyn M. Angeles.
184
G.R. No. 210845
SPOUSES DANILO AND CLARITA GERMAN, PETITIONERS, VS. SPOUSES BENJAMIN AND EDITHA SANTUYO
AND HELEN S. MARIANO, DECEASED, SUBSTITUTED BY HER HEIRS, NAMELY, JOSE MARIO S. MARIANO,
MA. CATALINA SAFIRA S. MARIANO, MA. LEONOR M. HUELGAS, MARY THERESA IRENE S. MARIANO AND
MACARIO S. MARIANO, RESPONDENTS.
When circumstances are present that should prompt a potential buyer of registered real property to be on guard, it is
expected that they inquire first into the status of the property and not merely rely on the face of the certificate of title.
This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, assailing the Decision2 and
Resolution3 of the Court of Appeals, Manila, in CA-G.R. CV. No. 93628. The Court of Appeals reversed and set aside a
Decision4 rendered by the Regional Trial Court of Naga City, Branch 61 in Civil Case No. 2001-0200, and held that
Spouses Benjamin and Editha Santuyo were purchasers in good faith of a 400-square meter parcel of land in Naga
City.
Francisco and Basilisa Bautista (the Bautista Spouses) were the registered owners of a 400-square meter parcel of land
in Barangay Balatas, Naga City, under Transfer Certificate of Title No. 11867.5
Allegedly, since 1985, Danilo and Clarita German (the German Spouses) had been occupying the property as the
lessees of Soledad Salapare, the caretaker for Jose and Helen Mariano (the Mariano Spouses). On April 22, 1986, the
Bautista Spouses sold the property to the Mariano Spouses. On the same day, the Mariano Spouses sold the property
to the German Spouses on the condition that Helen Mariano would sign the Deed of Sale upon the the German Spouses'
payment of the full purchase price.6
On July 28, 1992, Benjamin and Editha Santuyo (the Santuyo Spouses) filed a case for Recovery of Ownership and
Damages against the German Spouses before the Naga City Regional Trial Court, docketed as Civil Case No. RTC-92-
2620. There, the Santuyo Spouses alleged that they and the Bautista Spouses entered into a sale of the property on
December 27, 1991, and that they became the registered owners of the property under Transfer Certificate of Title No.
22931 as of April 28, 1992.7
The case was dismissed, but afterwards, the Santuyo Spouses filed a case for Unlawful Detainer and Damages against
the German Spouses with the Naga City Metropolitan Trial Court, docketed as Civil Case No. 10575. While the
Metropolitan Trial Court and the Regional Trial Court both dismissed the unlawful detainer case for lack of jurisdiction,
in 2000, the Court of Appeals in ruled that the first-level courts had jurisdiction and held that the Santuyo Spouses had
the right to possess the property as they were its registered owners. The Court of Appeals' Decision became final and
executory on August 13, 2000.8
On January 12, 2001, the German Spouses filed a case for Declaration of Nullity of Sale, Recovery of Ownership,
Reconveyance with Damages against the Santuyo Spouses and Helen Mariano before the Naga City Regional Trial
Court. The case was docketed as Civil Case No. 2001-0200.9
The German Spouses claimed that, despite their payment of the full purchase price in 1988, the Mariano Spouses failed
to execute the final Deed of Sale. Instead, the property was sold to Helen Mariano's sister, Editha Santuyo, and Editha's
husband.10
The Regional Trial Court ruled in favor of the German Spouses. The dispositive pmiion of its January 30, 2009
Decision11 stated:
 WHEREFORE, in the [sic] light of the foregoing considerations, judgment is hereby rendered:
1. Making permanent the preliminary injunction issued by this Court in its Order of February 21, 2001.
2. Declaring as null and void the deed of sale purportedly executed by Francisco Bautista in favor of Benjamin
Santuyo over Lot 6, Block 6 of the Consolidation Subdivision [P]lan (LRC) Pcs-758, being a portion of the
consolidation of Lot 3 , Pcs-4257 and Lot 5-A, (LRC) Psd-2672, LRC (GRRO Record No. 33067) situated in Naga
City and covered by [Transfer Certificate of Title] No. 11867.
3. Ordering the cancellation of [Transfer Certificate of Title] No. 22931 issued in the name of Benjamin Santuyo by
virtue of the deed of sale, and declaring the same to be without force and effect.
4. Declaring plaintiffs spouses Danilo and Clarita German as the rightful owners of the lot in question covered by
[Transfer Certificate of Title] No. 11867.
5. Ordering defendants Heirs of Helen Mariano to execute in favor of plaintiffs spouses Danilo and Clarita German,
a deed of absolute sale covering the lot in question covered by [Transfer Certificate of Title] No. 11867; and once
accomplished to immediately deliver the said document of sale to plaintiffs Germans.
The Regional Trial Court found that the sale of the property to the German Spouses was valid and enforceable, despite
Helen Mariano's failure to sign the Deed of Sale.13 As the German Spouses fully paid the price, the Mariano Spouses
or their heirs were obliged to convey title to them. The Bautista Spouses could not transfer ownership to the Santuyo
Spouses in a subsequent sale because they were no longer the owners of the property at the time.14 Moreover, the
Santuyo Spouses were not purchasers in good faith, as the trial court was unconvinced that Editha Santuyo did not
know about the prior sale to the German Spouses. It held that the German Spouses' continued possession of the
property was known by the Santuyo Spouses even before they bought the property.15
In its October 29, 2012 Decision,16 the Court of Appeals reversed and set aside the Regional Trial Court's Decision,
dismissing the German Spouses' complaint.
First, the Court of Appeals noted that both the marriage of the Mariano Spouses and their April 22, 1986 sale of the
property to the German Spouses were governed by the New Civil Code. As such, the Mariano Spouses' property regime
is that of conjugal partnership of gains. While Jose was the sole administrator of the conjugal property, he could not
sell the property without Helen's consent. However, any sale he made without her consent was not void, but only
voidable. Pursuant to Article 173 of the New Civil Code, Helen had 10 years from the date of the sale to annul it. Thus,
since there was no proof that she sought to annul the April 22, 1986 sale, it was still valid and enforceable.17
Second, the Court of Appeals did not give credence to the German Spouses' claim that the rules on double sale under
Article 1544 of the Civil Code applied. The April 22, 1986 Deed of Sale was a contract to sell, as the Mariano Spouses
reserved ownership over the property despite its delivery to the German Spouses. Moreover, the transactions were
made by two (2) different sellers: (1) the April 22, 1986 sale between the Mariano Spouses and the German Spouses;
and (2) the December 27, 1991 sale between the Bautista Spouses and the Santuyo Spouses.18
Third, the Court of Appeals held that the contract between the Mariano Spouses and the German Spouses was a
contract to sell, not a contract of sale. The Mariano Spouses reserved ownership of the property and would only execute
the deed of sale after full payment of the sale price. Thus, since the deed of sale was not executed, the German Spouses
did not have any right to file a case for reconveyance of the property, or to have the sale between the Bautista Spouses
and the Santuyo Spouses nullified.19
Finally, even if the sale to the German Spouses was not under a contract to sell, the Court of Appeals held that they
were unable to prove that the Santuyo Spouses were purchasers in bad faith. It noted that the property's certificate of
title did not have any liens or encumbrances that the Santuyo Spouses should have been aware of.20
The Court of Appeals denied the German Spouses' Motion for Reconsideration21 in its December 18, 2013 Resolution.22
185
On February 18, 2014, the German Spouses filed with this Court a Petition for Review on Certiorari23 under Rule 45
of the Rules of Court, assailing the October 29, 2012 Decision and December 18, 2013 Resolution of the Court of
Appeals. In their Petition for Review, they argue that the Court of Appeals erred in finding that the Santuyo Spouses
bought the property in good faith.
They point out that the Regional Trial Court found that they were in actual possession of the property, which was known
to respondent Editha Santuyo at the time of the 1991 sale, especially because she regularly passed by the property
when she went to work. Further, the Santuyo Spouses bought the prope1iy despite never being in possession of it.
These should have further prompted them to closely inspect the property they were buying.24
Petitioners also claim that Helen Mariano conspired with the Santuyo Spouses in order to acquire the property.
Respondent Helen Mariano assisted the Santuyo Spouses despite knowing that the property had been previously sold
to her and her spouse, Jose Mariano; even going so far as to execute a deed of guarantee, freeing the Bautista Spouses
from liability in the sale transaction with the Santuyo Spouses.25
Because of these circumstances, petitioners claim that the Santuyo Spouses could not have been in good faith when
they registered the property in their names.
On June 30, 2014, the Santuyo Spouses filed their Comment26 to the Petition for Review, claiming that the German
Spouses did not have the right to assert ownership over the property because their transaction with the Mariano
Spouses was only a contract to sell. Since the German Spouses failed to pay the full purchase price, they could not
compel the Mariano Spouses to execute a Deed of Sale in their favor.27 Moreover, they argue that they have a better
right of ownership over the property, because unlike the 1986 sales, they were able to register their title.28 According
to them, their registration was in good faith because, at the time the property was sold to them, the certificate of title
was still in the name of the seller, and there was no defect in the title which would require them to go beyond it. They
claim that, since Francisco Bautista was Editha Santuyo's godfather, there was no reason to doubt his title.29
The issues to be resolved by this Court are as follows:
First, whether or not Article 1544 of the Civil Code applies; and
Second, whether or not respondents the Santuyo Spouses were purchasers in good faith.
Article 1544 of the Civil Code states:
ARTICLE 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to
the person who may have first taken possession there o f in good faith, if it should be movable property.
Should it be immovable property , the ownership shall belong to the person acquiring it who in good faith first
recorded it in the Registry of Property. ·
Should there be no inscription , the ownership shall pertain to the person who in good faith was first in the possession;
and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.
For A11icle 1544 to apply , the following requisites must concur:
. . . This provision connotes that the following circumstances must concur:
(a) The two (or more) sales transactions in the issue must pertain to exactly the same subject matter, and must
be valid sales transactions.
(b) The two (or more) buyers at odds over the rightful ownership of the subject matter must each represent
conflicting interests; and
(c) The two (or more) buyers at odds over the rightful ownership of the subject matter must each have bought
from the very same seller. 30 (Emphasis in the original)
The rule on double sales applies when the same thing is sold to multiple buyers by one seller, but not to sales of the
same thing by multiple sellers.31
Contrary to the finding of the Court of Appeals, there was a double sale. The Bautista Spouses sold the same property:
first, to the Mariano Spouses in 1986; and second, to the respondents Santuyo Spouses in 1991. Neither of the parties
contest the existence of these two (2) transactions. The lower courts made no findings that put into doubt the respective
validities of the sales. Clearly, there are conflicting interests in the ownership, because if title over the property had
already been transferred to the Mariano Spouses, then no right could be passed on to respondents Santuyo Spouses
in the second sale.
Pursuant to Article 1544, ownership of immovable property subject of a double sale is transferred to the buyer who
first registers it in the Registry of Property in good faith. Undisputedly, the respondents Santuyo Spouses were the
ones who were able to register the property in their names with the Registry of Deeds for Naga City under Transfer
Certificate of Title No. 22931.
Nonetheless, the Regional Trial Court was correct in finding that respondents Santuyo Spouses were not in good faith
when they registered the property.
Generally, persons dealing with registered land may safely rely on the correctness of the certificate of title, without
having to go beyond it to determine the property's condition.32
However, when circumstances are present that should prompt a potential buyer to be on guard, it is expected that
they inquire first into the status of the land. One such circumstance is when there are occupants or tenants on the
property, or when the seller is not in possession of it. In Spouses Vallido v. Spouses Pono: 33
Moreover , although it is a recognized principle that a person dealing on a registered land need not go beyond its
certificate of title, it is also a firmly settled rule that where there a re circumstances which would put a party on guard
and prompt him to investigate or inspect the property being sold to him, such as the presence of occupants/tenants
thereon, it is expected from the purchaser of a valued piece of land to inquire first into the status or nature of
possession of the occupants. As in the common practice in the real estate industry, an ocular inspection of the
premises involved is a safeguard that a cautious and prudent purchaser usually takes. Should he find out that the
land he intends to buy is occupied by anybody else other than the seller who, as in this case, is not in actual
possession, it would then be incumbent upon the purchaser to verify the extent of the occupant's possessory rights.
The failure of a prospective buyer to take such precautionary steps would mean negligence on his part and would
preclude him from claiming or invoking the rights of a "purchaser in good faith. " It has been held that " the
registration of a later sale must be done in good faith to entitle the registrant to priority in ownership over the vendee
in an earlier sale."34 (Citations omitted )
Here, as pointed out by the Regional Trial Court, petitioners had continuously possessed the land even prior to the
1986 sales:
At the time of the sale between Jose Mariano and spouses German, the latter were already in possession of t h e land
way back in 1985 and after the sale in 1986, with the permission of the spouses Mariano, plaintiffs German renovated
their residential house therein which was completed in 1987. Since then they have been in actual physical possession
of the land and residing therein. The plaintiffs ' possession thereof was known to the defendants Santuyo even before
the execution of the deed of sale in their favor on December 27, 1991. The claim of defendants Santuyo cannot
prevail upon the plaintiffs Germans who first acquired and possessed the property from spouses Mariano after the
latter has bought the land from the Bautistas.
....
This court is not convinced by what defendant Editha has declared that before she bought the land from the Bautistas
, she had not yet seen the land but she knows that it is located inside Mariano Subdivision; that in 1986, she does
186
not know where it is located. That even in 1990 when she was already employed by the Mariano spouses at the Sto.
Nińo Memorial park, she did not visit the land. And that before the land was sold to her in 1991, she did not investigate
or determine what was the physical condition of the land[.]35
Respondent Santuyo Spouses' claim that it is enough that the title is in the name of the seller is unavailing. To buy
real property while having only a general idea of where it is and without knowing the actual condition and identity of
the metes and bounds of the land to be bought, is negligent and careless. Failure to take such ordinary precautionary
steps, which could not have been difficult to undertake for respondents Santuyo Spouses, as they were situated near
where the property is located, precludes their defense of good faith in the purchase.
Likewise, the involvement and cooperation of respondent Helen Mariano in the 1991 sale casts doubt on respondents
Santuyo Spouses' good faith. According to the Regional Trial Court:
Despite the denial of defendants spouses Santuyo knowledge of the presence of the plaintiffs on the land in question
and claim of ownership thereof, their evidence failed to show good faith in their purchase and registration of the land.
Defendant Editha presented the alleged down payment receipt she made on October 2, 1986 (Exh. "4") for the lot in
question she purchased from Francisco M. Bautista. The document however, which is quoted hereunder:
RECEIPT
Received from Mrs. Editha Santuyo, the amount of Twenty Thousand Pesos (P20,000.00) covered by PNB Check No.
0000038345 (Demand Draft) dated August 19, 1986, representing payment for a parcel of land located at
Naga City, sold to her by Jose Mariano.
Quezon City, October 2, 1986.
(SGD) FRANCISCO M BAUTISTA
speaks differently. If the lot was sold to defendant Editha, by Jose Mariano, why would Francisco Bautista sign the
receipt? If the her could have been his, what is the necessity of stating that the lot was sold by Jose Mariano when it
was registered in the name of Francisco Bautista?
If indeed the registered owner Bautista has sold the lot in question to defendants Santuyo, why should defendant Helen
sign a letter of guarantee (Exh. "2") before Bautista signed the deed of sale. Defendant Editha claimed that Bautista
allegedly told her that the lot was previously mortgaged to him (Bautista) by Jose Mariano. If it was the reason then
why was it not told to defendant Helen? Why would also defendant Helen sign a letter of guarantee without any
question? Or probably, this letter of guarantee gives relevance to the receipt (Exh. "4") mentioning about the "lot sold
to her by Jose Mariano"? These foregoing documents give semblance on the verified answer of Francisco Bautista (Exh.
"H") to the third party compliant in the case docketed as Civil case No. 92-2620 before Branch 27 of RTC Naga City,
for the "Recovery of Ownership with Damages" filed by defendants Santuyo as against the herein plaintiffs German. In
the said pleading , the Bautistas claimed that the sale between them and the Santuyos is fictitious since the former did
not receive any payment or consideration thereon. There is likewise an allegation in the Answer to the Amended
Complaint in the same case (Exh. "I") by Bautista which alleged in paragraph 6 thereof the following:
6. Answering defendants specifically deny the allegations of paragraph 15 of the complaint, the truth of matter being
that they were tricked and deceived into signing the alluded Deed of Sale between them. Actually such deceitful
machination and/or manipulation supervened when the plaintiff and their co-third party defendants Heirs of Jose
Mariano prevailed upon them to sign the Deed of Absolute Sale referred to in paragraph 4 hereof This was accomplished
through the joint effort of plaintiff Editha S. Santuyo and Third Party Defendant Helen S. Mariano, who are sisters,
upon their representation that the letter has not sold or conveyed the subject parcel of land to any party. According to
them if the sale would have to be made from the herein defendants to the plaintiffs, and not from the Marianas to the
plaintiffs, there would be no assessment of penalty charges by Bureau of Internal Revenue for the registration of the
sale. Relying on the foregoing representation of plaintiff Editha Santuyo and third party defendant Helen S. Mariano,
the herein defendants acceeded [sic] to the former's request.36 (Emphasis in the original)
The second buyer who has actual or constructive knowledge of the prior sale cannot be a registrant in good faith.37 The
totality of documents executed by all of the respondents show that the respondents Santuyo Spouses knew or should
have known that there is some cloud or doubt over the seller's title. Moreover, the Regional Trial Court correctly pointed
to the dubious circumstance by which one of parties to the 1986 sales, respondent Helen Mariano, actively participated
in the 1991 sale, especially in light of her familial relationship with respondent Editha Santuyo.
Due to respondents' lack of good faith, they cannot rely on the indefeasibility of their Transfer Certificate of Title. Thus,
in accordance with Article 1544 of the Civil Code, it is the first buyer, namely the Mariano Spouses, who had a better
right of ownership, and no ownership could pass on to the respondents Santuyo Spouses as a result.
WHEREFORE, the Petition for. Review is GRANTED. The Decision and Resolution of the Court of Appeals, Manila, in CA-
G.R. CV. No. 93628 are REVERSED AND SET ASIDE. The January 30, 2009 Decision of the Regional T rial Court of Naga
City, Branch 61 in Civil Case No. 2001-0200 is REINSTATED.
187
G.R. No. 199852 November 12, 2014
SPS. FELIPE SOLITARIOS and JULIA TORDA, Petitioners,
vs.
SPS. GASTON JAQUE and LILIA JAQUE, Respondents.
In this Petition for Review on Certiorari under Rule 45 of the Rules of Court, petitioners spouses Felipe Solitarios and
Julia Torda (spouses Solitarios) seek the reversal of the August 31, 2010 Decision and November 24, 2011 Resolution
of the Court of Appeals (CA) in CA-G.R. CEB-CV No. 00112, which in tum set aside the Decision of the Regional Trial
Court of Calbayog City, Branch 31 (RTC), in Civil Case No. 772.
The property subject of this suit is a parcel of agricultural land designated as Lot 4089, consisting of 40,608 square
meters (sq. m.), and located in Calbayog, Samar. It was originally registered in the name of petitioner Felipe Solitarios
under Original Certificate of Title (OCT) No. 1249, and, thereafter, in the name of the respondents, spouses Gaston
and Lilia Jaque (the Jaques), under Transfer Certificate of Title (TCT) No. 745.
In a Complaint for Ownership and Recovery of Possession with the RTC of Calbayog City, the respondents spouses
Jaque alleged that they purchased Lot 4089 from the petitioners, spouses Solitarios in stages. According to
respondents, they initially bought one-half of Lot No. 4089 for ₱7,000.00. This sale is allegedly evidenced by a notarized
Deed of Sale dated May 8, 1981. Two months later, the spouses Solitarios supposedly mortgaged the remaining half
of Lot 4089 to the Jaques via a Real Estate Mortgage (REM) dated July 15, 1981, to securea loan amounting to
₱3,000.00.
After almost two (2) years, the spouses Solitarios finally agreed to sell the mortgaged half. However, instead of
executing a separate deed of sale for the second half, they executed a Deed of Sale dated April 26, 1983 for the whole
lot to save on taxes, by making it appear that the consideration for the sale of the entire lot was only ₱12,000.00 when
the Jaques actually paid ₱19,000.00 in cash and condoned the spouses Solitarios’ ₱3,000.00 loan.
On the basis of this second notarized deed, the Jaques had OCT No. 1249 cancelled and registered Lot 4089 in their
name under Transfer Certificate of Title (TCT) No. 745.
In spite of the sale, the Jaques, supposedly out of pity for the spouses Solitarios, allowed the latter to retain possession
of Lot 4089, subject only to the condition that the spouses Solitarioswill regularly deliver a portion of the property’s
produce. In an alleged breach of their agreement, however, the spouses Solitarios stopped delivering any produce
sometime in 2000. Worse, the spouses Solitarios even claimed ownership over Lot 4089. Thus, the Jaques filed the
adverted complaint with the RTC.
For their part, the spouses Solitarios denied selling Lot 4089 and explained that they merely mortgaged the same to
the Jaques after the latter helped them redeem the land from the Philippine National Bank (PNB).
The spouses Solitarios narrated that, way back in 1975, they obtained a loan from PNB secured by a mortgage over
Lot 4089. They were able to pay this loan and redeem their property with their own funds. Shortly thereafter, in 1976,
they again mortgaged their property to PNB to secure a ₱5,000.00 loan. This time, the Jaques volunteered to pay the
mortgage indebtedness, including interests and charges and so gave the spouses Solitarios ₱7,000.00 for this purpose.
However, this accommodation was made, so the spouses Solitarios add, with the understanding that they would pay
back the Jaques by delivering to them a portion of the produce of Lot 4089, in particular, onehalf of the produce of the
rice land and one-fourth of the produce of the coconut land. The spouses Solitarios contended that this agreement was
observed by the parties until May 2000, when Gaston Jaque informed them that he was taking possession of Lot 4089
as owner. And to their surprise, Gaston Jaque showed them the Deeds of Sale dated May 8, 1981 and April 26, 1983,
the REM contract dated July 15, 1981, and TCT No. 745 to prove his claim. The spouses Solitarios contended that these
deeds of sale were fictitious and their signatures therein forged. Further, the spouses Solitarios challenge the validity
of TCT No. 745, alleging thatthe Jaques acquired it through fraud and machinations and by taking advantage of their
ignorance and educational deficiency. Thus, they prayed that the RTC: (1) cancel TCT No. 745; (2) declare the adverted
deeds of sales dated May 8, 1981 and April 26, 1983 as null and void; (3) declare them the true and lawful owners of
Lot 4089; and (4) award them moral and actual damages.
During the course of the trial, and in compliance with the February 7, 2001 Order of the RTC, the spouses Solitarios
deposited with the court a quothe Jaques’ purported share in the produce of Lot 4089 for the years 2001-2003, which
amounted to 16,635.60.1
On April 15, 2004, the RTC rendered a Decision2 upholding the validity of the deeds of sale in question and TCT No.
745, rejecting the allegations of forgery and fraud. However, in the same breath, the RTC declared that what the parties
entered into was actually an equitable mortgage as defined under Article 1602 in relation to Article 1604 of the New
Civil Code, and not a sale. Consequently, the RTC ordered, among others, the reformation of the Deeds ofSale dated
May 9,1981 and April 26, 1983, and the cancellation of TCT No. 745 in the name of the Jaques. The dispositive portion
of the RTC Decision reads:
WHEREFORE, this Court dismisses the instant case and pronounces Judgment against plaintiffs and hereby orders
the following:
1. Reformation of the Deed of Sale dated May 9, 1981 (Exhibit "E") and the Deed of Sale dated April 26, 1983
(Exhibit "G") into contracts of mortgage;
2. Cancellation of TCT No. 745 in the name of spouses Gaston Jaque and Lilia Laure Jaque;
3. Considering the total mortgage debt of Php 12,000.00 as totally paid pursuant to Article 1602 of the New Civil
Code;
4. Release of the amounts deposited to the Court by defendants to them minus lawful charges for their safekeeping,
if any; and
5. Payment of costs of the proceedings by the plaintiffs.
The RTC anchored its holding on the nature of the pertinent contracts in question on its findings that: (1) after the
alleged sale, the spouses Solitarios remained in possession ofthe land; (2) the Jaques did not physically occupy Lot
4089; (3) the consideration for the sale of the whole land as stated in the Deed of Sale dated April 26, 1983, was only
₱12,000.00, an amount grossly inadequate for a titled coconut and rice lands consisting of 40,608 sq. m.; (3) the
Jaques did not disturb the possession of Lot 4089 by Leonora Solitarios, Felipe’s sister-in-law, who resided therein;
and (4) the Jaques never had a tenant in the subject property.
On appeal, the CA4 reversed and set aside the RTC Decision, rejecting the trial court’s holding that the contract between
the parties constituted an equitable mortgage.
The CA noted that the allegation thatthe transaction is an equitable mortgage and not one of sale was not presented
before the trial court and was raised belatedly on appeal. Even then, the CA held that the spouses Solitarios failed to
convincingly prove that the deeds of sale were sham, noting that their bare denial as to their authenticity was
insufficient to overcome the positive value of the notarized deeds of sale. The CA further found that the spouses
Solitarios’ claim of inadequacy of the purchase price is unsupported by any evidence on record and that the spouses
Solitarios’ possession of Lot 4089 after the sale was not in the concept of an owner. In addition, the appellate court
gave weight to the fact that the Jaques paid the taxes on Lot 4089 since 1984. The CA, thus, concluded that based on
the parties’ actuations before, during, and after the transactions, it was unmistakable that they had no other intention
but to enter into a contract of sale of Lot 4089.
188
Their Motion for Reconsideration having thereafter been denied by the CA in its Resolution dated November 24, 2011,
the spouses Solitarios5 have filed the instant petition.
Issue
From the foregoing narration of facts,it is abundantly clear that the only material point of inquiry is whether the parties
effectively entered into a contract of absolute sale or anequitable mortgage of Lot 4089.
The Court's Ruling
The petition is impressed with merit.
At the outset, We note that, contrary to the finding of the CA, petitioner spouses Solitarios actually presented before
the RTC their position that the real agreement between the parties was a mortgage, and not a sale. Being unlettered,
petitioners may have averred that the deeds of sale and TCT presented by respondents were forgeries, obtained as
they were through fraud and machination. However, their saying that the sale instruments were "fictitious" and their
signatures thereon were "forged" amounts to alleging that they never agreed to the sale of their lot, and they never
intended to sign such conveyances. This reality is supported by the testimony of petitioner Felipe Solitarios that was
offered to prove the true intention of the parties ―that Lot 4089 was only mortgaged, not sold, to the Jaques. Before
Felipe’s direct examination, his counsel stated thus-
"ATTY. MARTIRES
With the permission of the Court.This witness is one of the defendants; he will testify that the land was just
mortgaged to the plaintiff contrary to the claim of the plaintiff that the defendants sold the same to the plaintiffs;
he will also testify that the defendants never executed deed of sale in favor of the plaintiffs; he will also testify that
½ of the produce of the cocoland subject of this case was delivered by the defendants to the plaintiffs and with
regards to the riceland, ¼ of the produce was also delivered to the plaintiffs; and he will also testify other matters
related to this case."6
The Court is, therefore, not precluded from looking into the real intentions of the parties in order to resolve the present
controversy. For that reason, the Court takes guidance from Article 1370 of the Civil Code, which instructs that "if the
words [of a contract] appear to be contrary to the evident intention of the parties, the latter shall prevail over the
former." Indeed, it is firmly settled that clarity of contract terms and the name given to it does not bar courts from
determining the true intent of the parties. In Zamora vs. Court of Appeals, 7 the Court elucidated that —
In determining the nature of a contract, courts are not bound by the title or name given by the parties. The decisive
factor in evaluating such agreement is the intention of the parties, as shown not necessarily by the terminology used
in the contract but by their conduct, words, actions and deeds prior to, during and immediately after executing the
agreement. As such therefore, documentary and parol evidence may be submitted and admitted to prove such
intention.8 Further, in resolving this kind of controversy, the doctrinal teaching of Reyes vs. Court of Appeals9 impels
us to give utmost consideration to the intention of the parties in light of the relative situation of each, and the
circumstances surrounding the execution of the contract, thus: In determining whether a deed absolute in form is a
mortgage, the court is not limited to the written memorials of the transaction. The decisive factor in evaluating such
agreement is the intention of the parties, as shown not necessarily bythe terminology used in the contract but by all
the surrounding circumstances, such as the relative situation of the parties at that time, the attitude, acts, conduct,
declarations of the parties, the negotiations between them leading to the deed, and generally, all pertinent facts
having a tendency to fix and determine the real nature of their design and understanding. x x x
There is no single conclusive test to determine whether a deed of sale, absolute on its face, is really a simple loan
accommodation secured by a mortgage.10 However, Article 1602 in relation to Article 1604 of the Civil Code enumerates
several instances whena contract, purporting to be, and in fact styled as, an absolute sale, is presumed to be an
equitable mortgage, thus:
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:
(1) When the price of a sale withright to repurchase is unusually inadequate;
(2) When the vendor remains inpossession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument extending the period of
redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise
shall be considered as interest which shall be subject to the usury laws. 11 Art. 1604. The provisions of Article 1602
shall also apply to a contract purporting to be an absolute sale.
As evident from Article 1602 itself, the presence of anyof the circumstances set forth therein suffices for a contract to
be deemed an equitable mortgage. No concurrence or an overwhelming number is needed. 12
With the foregoing in mind, We thus declare that the transaction between the parties of the present case is actually
one of equitable mortgage pursuant to the foregoing provisions ofthe Civil Code. It has never denied by respondents
that the petitioners, the spouses Solitarios, have remained in possession of the subject property and exercised acts of
ownership over the said lot even after the purported absolute sale of Lot 4089. This fact is immediately apparent from
the testimonies of the parties and the evidence extant on record, showing that the real intention of the parties was for
the transaction to secure the payment of a debt. Nothing more.
Petitioner’s Possession of the Subject Property after the Purported Sale
During pre-trial, the Jaques admitted that the spouses Solitarios were in possession of the subject property. 13 Gaston
Jaque likewise confirmed that petitioners were allowed to produce copra and till the rice field, which comprise one-half
of the lot that was previously covered by the real estate mortgage, after said portion was allegedly sold to them. 14
This Court had held that a purportedcontract of sale where the vendor remains in physical possession of the land, as
lessee or otherwise, is an indiciumof an equitable mortgage. 15 In Rockville v. Sps. Culla,16 We explained that the reason
for this rule lies in the legal reality that in a contract of sale, the legal title to the property is immediately transferred
to the vendee. Thus, retention by the vendor of the possession of the property is inconsistent with the vendee’s
acquisition of ownership under a true sale. It discloses, in the alleged vendee, a lack of interest in the property that
belies the truthfulness of the sale.
During the period material to the present controversy, the petitioners, spouses Solitarios, retained actual possession
of the property. This was never disputed. If the transaction had really been one of sale, as the Jaques claim, they
should have asserted their rights for the immediate delivery and possession of the lot instead of allowing the spouses
Solitarios to freely stay in the premises for almost seventeen (17) years from the time of the purported sale until their
filing ofthe complaint. Human conduct and experience reveal that an actual owner of a productive land will not allow
the passage of a long period of time, as in this case, without asserting his rights of ownership.
Further, Gaston Jaque first claimed possession of the subject property through his mother-in-law, and then through
hired workers when the latter passed away;17 not personally. It is also undisputed that the Jaques never installed a
tenant on Lot 4089 and did not disturb the Solitarios’ possession of the same. 18 On this note, We agree with the finding
189
of the RTC that the Jaques’ alleged possession of the subject property is suspect and unsubstantial, and they never
possessed the same in the concept of owners, viz:
Even as to the first half portion of the land allegedly sold by the defendants to the plaintiffs, the evidence too tends
to show that the plaintiffs did not really possess it asowners. Plaintiffs’ evidence with regards to their possession over
this portion is very doubtful. According to plaintiff Gaston Jaque when he testified in Court, they possessed this
portion through his mother-in-law till she died in 1992 or 1992: that when she died, they possessed it already through
hired workers. However, in the statement of facts of the resolution of the public prosecutor in the case of Qualified
Theft which plaintiffs filed against the defendants, it is clearly shown that the plaintiffs stated thatthe defendants
took possession of the entire property since 1983 yet.
On the other hand, in this case, they are now claiming that it was actually in the year 2000 that the defendants bid
claim on this land.
xxxx
Third, the fact that defendants’ witness Leonora Solitarios [Felipe’s sister] resides and has a house in the land in
question without having been disturbed by the plaintiffs and the fact that the plaintiffs never have a tenant in the
land even if they reside in Cebu City also show in some manner that they are not really the owners of the land, but
the defendants.19
Not only is there a presumption that the deeds of sale are an equitable mortgage, it has been amply demonstrated by
petitioners that the deed of sale is intended to be one of mortgage based on the proof presented by petitioners and
propped up even by the admissions of respondents. The intention of the parties was for the transaction to secure the
payment of a debt
To stress, Article 1602(6) of the Civil Code provides that a transaction is presumed to be an equitable mortgage:
(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any other obligation.
This provision may very well be applied in this case. There is sufficient basis to indulge in the presumption that the
transaction between the parties was that of an equitable mortgage and that the spouses Solitarios never wanted to sell
the same to the Jaques.
The foregoing presumption finds support in the following: First, the very testimony of Gaston Jaque and the documents
he presented establish the existence of two loans, which the Jaques extended to the spouses Solitarios, that were
secured by the subject property; and, second, the testimonies of the parties reveal that they came to an agreement
as to how these loans would be paid.
The first loan was contracted when Gaston Jaque gave the spouses Solitarios ₱7,000.00 to help them redeem the
subject property from PNB.20 In effect, by extending the ₱7,000.00 financial assistance to the spouses Solitarios,
Gaston Jaque took over the loan, became the lender and assumed the role of mortgagee in place of PNB.
Thereafter, the spouses Solitarios obtained a second loan from the Jaques amounting to ₱3,000.00. This is evidenced
by an REM dated July 15, 1981 by virtue of which the spouses Solitarios mortgaged one-half of the subject property
to the Jaques to secure the payment of said loan.
The parties testified that they entered into a verbal agreement on the sharing of the produce of the subject property.
For his part, it seemed that Gaston Jaque wanted to impress upon the lower court that this sharing agreement was
fixed as a condition for his allowing the Solitarios’ continued possession and cultivation of the subject property.
However, there is a strong reason to believe that this arrangement was, in fact, a payment scheme for the debts that
the spouses Solitarios incurred.
During his testimony, Felipe Solitarios explained that after the Jaques gave him funds to redeemthe property from while the 1981 REM document contains the signature "Julia Turda,"26 the 1983 Deed of Sale bears the signature "Julia
PNB, they entered into an agreement on the sharing of the produce and that this arrangement would last until they Torda." These discrepancies suggest that the documents were signed by different persons.
shall have redeemed the land from the Jaques. We note that this assertion by Felipe Solitarios was never refuted on
cross or re-cross examination. Felipe Solitarios explained– Nevertheless, assuming arguendo that these documents were really signed by petitioners, there is reason to believe
DIRECT EXAMINATION BY
that they did so without understanding their real nature and thatthe Jaques never explained to them the effects and
ATTY. MELINDA MARTIRES
Q When did Lilia Jaque give you the money to redeem the mortgage indebtedness from the Philippine National Bank? consequencesof signing the same.
A In 1976
Q How much did she give you? In negotiating the transactions, the parties did not deal with each other on equal terms
A ₱5,000.00
Q After giving you the amount of 5,000.00 to be used to redeem the mortgage indebtedness, was there any agreement between you
and Lilia Jaque? The Civil Code provisions that consider certain types of sales as equitable mortgages are intended for the protection of
A Our agreement was, on the produce of the riceland, she will be given 1/4 and on the coconut land 1/2.21 the unlettered such as the spouses Solitarios, who are penurious vis-à-vis their creditors.27 In Cruz v. Court of
xxx xxx xxx Appeals,28 the Court held -
Q Where were the spouses when the land was already redeemed from the PNB?
A They were in Cebu.
Q So, to whom did you deliver their share of the produce of the land? Vendors covered by Art. 1602 usually find themselves in an unequal position when bargaining with the vendees, and
A To Yaning, the mother of Ma Lilia. will readily sign onerous contracts to get the money they need. Necessitous men are not really free men in the sense
Q When did you start delivering the share of the plaintiff of the land in question? that toanswer a pressing emergency they will submit to any terms that the crafty may impose on them. This is precisely
A From the time I mortgaged this land to them.
the evil that Art. 1602 seeks to guard against. The evident intent of the provision is to give the supposed vendor
Q You mean to say from 1976?
A Yes. maximum safeguards for the protection of his legal rights under the true agreement of the parties.
Q How many times did you deliver tothe parents of the plaintiffs the share of the plaintiffs ofthe produce of the land?
A Every harvest, we deliver their share and everytime we make copra, we also deliver their share to Ma Yaning. Without doubt, the spouses Solitarios need the protection afforded by the Civil Code provisions on equitable mortgage.
xxx xxx xxx
Certainly, the parties were negotiating on unequal footing. As opposed to the uneducated29 and impoverished farmer,
ATTY. MARTIRES
Q Per condition with the plaintiffs which you have told us a while ago, for how long will you deliver their share? Felipe Solitarios,30 Gaston Jaque, was a 2nd Lieutenant of the Armed Forces of the Philippines when he
A Every harvest we have to give their share because we have not yet redeemed the land. retired.31 Further, Felipe Solitarios was constantly infinancial distress. He was constantly in debt and in dire financial
Q So there was no duration of your giving their share of the land? need. That he borrowed money from the PNB twice, first in 1975 then in 1976, and mortgaged the subject property to
A If I desire to redeem the land from them.22 the Jaques suggest as much.
Furthermore, Gaston Jaque himself testified receiving a portion of the produce of the subject property preciselybecause
of the loan covered by the July 15, 1981 REM.23
While Felipe Solitarios was able to settle his 1975 loan and redeem the mortgage with his own money,32 he no longer
had enough funds to redeem the subject property after obtaining a loan in 1976. Thus, he was impelled to borrow
It is, thus, clear from the foregoing that the Jaques extended two loans to the spouses Solitarios, who in exchange, money from the Jaques to get his property back in 1981. Shortly after, on July 15, 1981, Felipe Solitarios, again
offered tothe former the subject property, not to transfer ownership thereto, but to merely secure the payment of their indesperate need, borrowed money from Gaston Jaque and mortgaged to the latter a portion of the subject property.
debts. This may be deduced from the testimonies of both Felipe Solitarios and Gaston Jaque, revealing the fact that
they agreed upon terms for the payment of the loans, in particular, the sharing in the produce of the lot.
It is, therefore, not difficult to imagine that Felipe Solitarios quickly consented to arrangements proposed to him by a
seemingly trustworthy Gaston Jaque, and mindlessly signed instrumental documents that were never explained to him
Verily, the fact that the parties agreed on payment terms is inconsistent with the claim of the Jaques that when the and he never fully understood but nonetheless assured him of fast cash and easy payment terms. What the court a
spouses Solitarios executed the questioned deeds of sale they had no other intention but to transfer ownership over quo wrote in this regard merits concurrence:
the subject property. Still another fact which militates against plaintiffs’ cause is their failure to prove during trial that they really
endeavored to explain to the defendants the real nature of the contract they were entering into, it appearing that the
Thus, there is ground to presume that the transaction between the parties was an equitable mortgage and not a sale. defendants are of low education compared to them especially plaintiff Gaston Jaque who is a retired military officer.
There is nothing in the records sufficient enough to overturn this presumption. The law requires that in case one of the partiesto a contract is unable to read (or maybe of low education), and fraud
isalleged, the person enforcing the contract must show that the term thereof have been fully explained to the former
(Spouses Nena Arriola and Francisco Adolfo, et.al. vs. Demetrio Lolita, Pedro, Nena, Braulio and Dominga, all
The contracts of sale and mortgage are of doubtful veracity
surnamed Mahilum, et. al. G.R. No. 123490, August 9, 2000).33

Furthermore, an examination of the transaction documents casts doubts on their validity. As alleged by petitioners,
The law favors the least transmission of rights
their signatures therein appear to be forged. We distinctlyobserve that each of the three (3) documents bears different
versions of petitioner Julia Solitarios’ signatures. First, on the first page of the 1981 Deed of Sale, particularly on the
space provided for Julia Solitarios to express her marital consent to the sale, the signature "Julia Torda Solitarios" It is further established that when doubt exists as to the true nature of the parties’ transaction, courts must construe
appears.24 What is strange is that in the acknowledgement page of the very same document, Julia Solitarios purportedly such transaction purporting to be a sale as an equitable mortgage, as the latter involves a lesser transmission of rights
signed as "Julia T. Solitarios,"25 which is obviously different from the signature appearing on the first page. Further, and interests over the property in controversy. 34 Thus, in several cases, the Court has not hesitated to declare a

190
purported contract of sale to be an equitable mortgage based solely on one of the enumerated circumstances under
Article 1602. So it should be in the present case.
In Sps. Raymundo v. Sps. Bandong,35 the Court observed that it is contrary to human experience that a person would
easily part with his property after incurring a debt. Rather, he would first look for means to settle his obligation, and
the selling of a propertyon which the house that shelters him and his family stands, would be his last resort.
Here, the Court finds the spouses Solitarios’ alleged sale of the subject property in favor of the Jaques simply contrary
to normal human behavior. Be it remembered that the spouses Solitarios depended much on this property as source
of income and livelihood. Further, they made use of it to obtain and secure badly needed loans. This property was so
important to them that they had to borrow money from the Jaques to raise funds to ensure its redemption. Furthermore,
even after the supposed sale, the spouses Solitarios remained tied to this land asthey never left it to live in another
place and continued tilling and cultivating the same. Thus, considering how valuable this land was to the spouses
Solitarios, being their main, if not, only source of income, it is hard to believe that they would easily part with it and
sell the same to another.
Furthermore, it is also difficult to understand why, after going through all the complications in redeeming the property
from PNB, the spouses Solitarios would simply transfer this tothe Jaques. It is inconceivable that the spouses Solitarios
would sell their property just to pay the PNB loan. It is more believable that, if at all, they conveyed their land on a
temporary basis only, without any intention to transfer ownership thereto and with the assurance that upon the
payment of their debts, the same would be returned to them.
The only reasonable conclusion that may be derived from the execution of the Deeds of Sale in favor of the Jaques is
to ensure that the Solitarios will pay their obligation.
The transfer of the subject property is a pactum commissorium
Further, We cannot allow the transfer of ownership ofLot 4098 to the Jaques as it would amount to condoning the
prohibited practice of pactum comissorium. Article 2088 of the Civil Code clearly provides that a creditor cannot
appropriate or consolidate ownership over a mortgaged property merely upon failure of the mortgagor to pay a debt
obligation,36 viz.:
Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any
stipulation to the contrary is null and void.
The essence of pactum commissorium is that ownership of the security will pass to the creditor by the mere default of
the debtor. This Court has repeatedly declared such arrangements as contrary to morals and public policy. 37
As We have repeatedly held, the only right of a mortgagee in case of non-payment of debt secured by mortgage would
be to foreclose the mortgage and have the encumbered property sold to satisfy the outstanding indebtedness. The
mortgagor’s default does not operate to automatically vest on the mortgagee the ownership of the encumbered
property, for any such effect is against public policy, as earlier indicated. 38
Applying the principle of pactum commissorium to equitable mortgages, the Court, in Montevirgen vs. CA, 39 enunciated
that the consolidation of ownership in the person of the mortgagee in equity, merely upon failure of the mortgagor in
equityto pay the obligation, would amount to a pactum commissorium.The Court further articulated that if a mortgagee
in equity desires to obtain title to a mortgaged property, the mortgagee’s proper remedy is to cause the foreclosure of
the mortgage in equity and buy it at a foreclosure sale.
191
In Sps. Cruz vs. CA,40 the Court again reiteratedthat, in an equitable mortgage, perfect title over the mortgaged
property may not be secured in a pactum commissorium fashion, but only by causing the foreclosure of the mortgage
and buying the same in an auction sale. The Court held –
Indeed, all the circumstances, taken together, are familiar badges of an equitable mortgage. Private respondents
could not in a pactum commissorium fashion appropriate the disputed property for themselves as they appeared to
have done; otherwise, their act will not be countenanced by this Court being contrary to goodmorals and public policy
hence void. If they wish to secure a perfect title over the mortgaged property, they should do so in accordance with
law, i.e., by foreclosing the mortgage and buying the property in the auction sale.
It does not appear, under the premises, that the Jaques availed themselves of the remedy of foreclosure, or that
they bought the subject property in an auction sale after the spouses Solitarios failed to pay their debt obligation.
What seems clear is that the Jaques took advantage of the spouses Solitarios’ intellectual and educational deficiency
and urgent need of money and made it appear that the latter executed in their favor the questioned Deeds of Sale,
thereby automatically appropriating unto themselves the subject property upon their debtors’ default. The amount
reflected in the 1981 Deedof Sale is telling. The sum of ₱7,000.00 representing the alleged purchase price of one-
half of the subject property in the 1981 Deed of Sale is actually the amount advanced to the spouses Solitarios by
way of loan. Other than the testimony of Gaston Jaque, there is no evidence showing that this purchase price was
actually paid or that the subject property was bought in a foreclosure sale.
Further, it can be gleaned from the testimony of Gaston Jaque that when the spouses Solitarios failed to pay their
loan of ₱3,000.00, reflected in the July 15, 1981 REM covering the remaining half of the subject property, 41 the
Jaques did not foreclose the mortgage and purchase the said lot in an auction sale. Rather, they supposedly bought
the lot directly from the spouses Solitarios and offset the loan amount against a portion of the supposed purchase
price they agreed upon.42
Indubitably, the subject property was transferred to the Jaques in a prohibited pactum commisorium manner and,
therefore, void. Thus, the foregoing transaction and the registration of the deeds of sale, by virtue of which the Jaques
were able to obtain the impugned TCT No. 745 must be declared void. 43
Furthermore, given that the transaction between the parties is an equitable mortgage, this means that the title to the
subject property actually remained with Felipe Solitarios, as owner-mortgagor, conformably with the well-established
doctrine that the mortgagee does not become the owner of the mortgaged property because the ownership remains
with the mortgagor.44 Thus, Felipe Solitarios’ ownership over the subject property is not affected by the fact that the
same was already registered in the name of the Jaques. The pronouncement in Montevirgen v. Court of Appeals is
instructive:
x x x Equity looks through the form and considers the substance, and no kind of engagement can be allowed which
will enable the parties to escape from the equitable doctrine adverted to. In other words, a conveyance of land,
accompanied by registration in the name of the transferee and the issuance of a new certificate, is no more secured
from the operation of this equitable doctrine than the most informal conveyance that could be devised.
Finally, the circumstance that the original transaction was subsequently declared to be an equitable mortgage must
mean that the title to the subject landwhich had been transferred to private respondents actually remained or is
transferred back to petitioners herein as ownersmortgagors, conformably to the well-established doctrine that the
mortgagee does not become the owner of the mortgaged property because the ownership remains with the mortgagor
(Art. 2088, New Civil Code).45
Finally, We agree with the RTC that the mortgage debt of the spouses Solitarios had been fully paid.1âwphi1 This holds
true whether the amount of the debt is ₱12,000.00, as found by the RTC or ₱22,000.00, the amount which the Jaques
claim they paid for the subject property. The RTC elucidated as follows -
2. The total mortgage debt of Php12,000.00 which was the consideration in Exh. "G" is deemed totally paid.
[ G.R. No. 203946, August 04, 2021 ]
ARTURO A. DACQUEL, PETITIONER, VS. SPOUSES ERNESTO SOTELO AND FLORA DACQUELSOTELO,
REPRESENTED BY THEIR ATTORNEY-IN-FACT, IMELDA SOTELO, RESPONDENTS.

Subjet of the case is a parcel of land located in Malabon City formerly covered by Transfer Certificate of Title (TCT) No.
This finding is based on the last paragraph of Article 1602 of the New Civil Code of the Philippines which provides that
7384 in the names of respondents-spouses Ernesto and Flora Sotelo (the Sotelos), later registered und er TCT No. M-
"In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise
106495 under the name of petitioner Arturo Dacquel (Dacquel). Established facts show that in 1994, the Sotelos began
shall be considered as interest which shall be subject to the usury laws." (underscoring ours)
the construction of a 7-door apartment on the subject land. Due to budget constraints, the Sotelos had to borrow the
amount of P140,000.00 from Dacquel, who was Flora Sotelo's (Flora) brother. The construction of the apartment was
If this Court will take at its face value plaintiffs’ claim in their complaint that they get Php10,000.00 every quarter or completed in 1997.6
Php40,000.00 a year from the coconut portion and Php5,000.00 every planting season or Php10,000.00 a year from
the rice land portion of the subject land, then plaintiffs could have earned Php50,000.00 a year or more or less one
The Sotelos claimed that the debt of P140,000.00 was agreed to be payable in double the said amount or P280,000.00,
million pesos already when they filed this case in the year 2000.
to be collected from the rental income of four out of the seven apartment units. There was no agreed period within
which to pay the loan and the interests. Dacquel also required the Sotelos to cede to him the subject land as security
But this Court has given more credence to defendants’ assertion that from 1976 to 2000, hewas giving the one-half for the loan.
share of the plaintiffs from the proceeds of the copras and rice land to plaintiffs’ alleged caretaker, Yaning. So, if the
produce of the land in question as claimed by the plaintiffs is about Php50,000.00 a year, one-half (1/2) of it would be
Consequently, on September 1, 1994, the parties executed a Deed of Sale7 in consideration of the amount of
Php25,000.00 which is 25 times higher than the Php1,000.00 interest at 12% per year for the alleged purchase price
P140,000.00. TCT No. 738 in the names of the Sotelos was thereafter cancelled and TCT No. M-10649 was issued,
of Php12,000.00 of the land in question. The Php24,000.00 excess interest would have already been sufficient to pay
constituting Dacquel as the new registered owner of the subject land. In March 2000, when Dacquel had collected the
even the principal of Php12,000.00. Thus, clearly, the Php12,000.00 purchase price of the land should now be
full amount of P280,000.00 in rental income from the four apartment units, the Sotelos asked for the return of the
considered fully paid.
subject lot. Dacquel, however, allegedly held on to the title and refused to yield the subject lot to the Sotelos.8

WHEREFORE, premises considered, the petition is GRANTED. The assailed August 31, 2010 Decision and November 24,
Thus, on May 29, 2000, the Sotelos filed a Complaint9 for annulment of title and reconveyance against Dacquel before
2011 Resolution of the Court of Appeals in CA-G.R. CEB-CV No. 00112 are, thus, SET ASIDE. The Decision of the
the Regional Trial Court (RTC), Branch 74 of Malabon City. The Sotelos alleged in their Complaint that Dacquel held
Regional Trial Court, Calbayog City Branch 21 in Civil Case No. 772 is REINSTATED, with modification that the
the title to the subject land only as security for the loan and in trust for the Sotelos, who remained the beneficial
reformation of the Deeds of Absolute Sale dated May 9, 1981 and April 26, 1983 is deleted as it is unnecessary, and
owners of the subject lot. Upon Dacquel's receipt of more than the amount he had loaned to the Sotelos, the former
that the transfer of the title to the name of petitioners shall be exempt from registration fees and taxes and other
was legally obligated to reconvey the property to the latter. The building permits for the 7-door apartment, as well as
charges. As Modified, the Decision of the trial court shall read:
the original registration of the electric and water meters of all seven units, were issued in Ernesto Sotelo's (Ernesto)
name and that the construction expenses were paid for by Ernesto's checks.
WHEREFORE, this Court dismisses the instant case and pronounces Judgment against plaintiffs and hereby orders the
following:
Anent the September 1, 1994 Deed of Sale, Ernesto claimed that he could not remember having signed the document
1. TCT No. 745 in the name of spouses Gaston Jaque and Lilia Laure Jaque is declared void and cancelled.
as he was too sick at the time, and that Flora's signature thereon was forged. The market value of the subject property
Furthermore, the Register of Deeds of the City of Calbayog is ordered to issue a new title in the name of petitioners
in 1994 was P1,750,000.00 and not just P140,000.00. Also, in order to fund the apartment construction expenses,
Felipe Solitarios and Julia Torda without need of payment of registration fees, taxes, and other charges;
Ernesto had even mortgaged the subject property to a bank for P500,000.00 and the mortgage had been annotated to
2. The total mortgage debt is considered and deemed totally paid pursuant to Article 1602 of the New Civil Code;
the title. The title to the subject property should not and could not have been transferred to Dacquel's name since the
3. The amounts deposited to the Court by defendants Solitarios are ordered released to plaintiffs Spouses Gaston
latter was a foreigner despite having misrepresented his nationality as a Filipino in the disputed Deed of Sale. The
and Lilia Jaque minus lawful charges for their safekeeping, if any; and
Sotelos likewise prayed for moral damages and attorney's fees.10
4. The costs of the proceedings shall be paid by the plaintiffs.

The Sotelos presented the following pertinent documents: official receipts issued by Ernesto acknowledging rental
payments made to him by the lessees of the three apartment units; building and electrical permits intended for the
construction of the apartment, Meralco service deposit receipts, and Maynilad Water billings, all in the name of Ernesto;
checks issued by Ernesto, which constituted as payments to the professionals who worked on the apartment
construction; and copies of contracts of lease executed between Ernesto and the lessees of the three apartment units.
Testifying for the Sotelos were Ernesto and Imelda Sotelo, the Sotelos' daughter and attorney-in-fact.11

Dacquel, on the other hand, asserted that the Sotelos's debts to him totaled P1,000,000.00, which he had recorded in
a black diary. As payment for their debts, the Sotelos had actually offered to sell to him the subject land and he had
accepted their offer. They reduced the said agreement into writing as a Deed of Sale on September 1, 1994 for the

192
true consideration of P1,000,000.00, and the amount of P140,000.00 was indicated on the Deed of Sale only for the
purpose of reducing the tax liabilities for the transaction.
The Sotelos were allegedly estopped from questioning the validity of the Deed of Sale because of their acquiescence
to the subject property's transfer unto Dacquel's name. Also, Dacquel caused the construction of the apartment using
the sum he inherited from one Richmond Lloyd Wilcox. He did not authorize the Sotelos to lease and collect rental
payments from the three apartment units. By way of counterclaim, Dacquel sought moral and exemplary damages
against the Sotelos, as well as reimbursement of attorney's fees.12
Dacquel offered the following as proof, among others: copy of the Deed of Sale dated September 1, 1994; copy of TCT
No. M-10649 registered in Dacquel's name; last will and testament of one Richmond Lloyd Wilcox; the black diary;
a Dacion en Pago undertaken but unsigned by Dacquel; and contracts of lease executed between Dacquel and different
lessees over the apartment units.13 Dacquel took the witness stand, as well as Carmencita Balajadia (Carmencita)who
was Dacquel and Flora's niece. Carmencita narrated that the Sotelos signed the Deed of Sale voluntarily as she allegedly
facilitated the execution of the Deed of Sale.14
Ruling of the Regional Trial Court:
The RTC ruled in favor of Dacquel. It held that there was no evidence that Dacquel was of foreign citizenship who was
disqualified to own lands in the Philippines as of the date of sale. It also discounted the checks issued and presented
by Ernesto, since there was nothing on the face of the said checks to show that these were intended to finance the
construction of the apartment, more so that these were issued to pay to the order of "Cash". The RTC also ruled that
the registration of property in one's name for billing purposes, when in reality the same property is owned by another,
is common practice in the country In its May 27, 2009 Decision,15 the RTC dismissed the Sotelos' Complaint as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of defendant Arturo A. Dacquel and against
plaintiffs spouses Ernesto and Flora Sotelo. The complaint for Annulment of Title and Reconveyance of Instrument
is DENIED for lack of sufficient evidence.
The Sotelos appealed to the CA.
Ruling of the Court of Appeals:
The CA reversed the RTC and decided in favor of the Sotelos. Applying the provisions of Articles 1602 and 1604 of the
Civil Code, the CA declared the September 1, 1994 Deed of Sale to be one of equitable mortgage. It found two badges
of fraud: gross inadequacy of the price and the continued possession by the Sote1os of the subject property.17
According to the CA, the first badge of fraud was extant as the undisputed market value of the 350-square meter
subject property in 1994 was P1,750,000.00 at P5,000.00 per square meter, but was sold in the Deed of Sale for only
P140,000.00. Dacquel failed to substantiate the Sotelos' indebtedness of P1,000,000.00 to justify the allegation that
the Deed of Sale was subjected to a dation in payment.
Even if the amount js so proven, the Deed of Sale did not show that the subject property was being conveyed for a
consideration other than the amount of P140,000.00. There was also no proof that the parties consented to the
supposed dation in payment in the amount of P1,000,000.00. From these, the CA concluded that there was gross
inadequacy of the purchase price as indicated in the Deed of Sale and the actual price of the subject property.18
The CA likewise found the Sotelos to have continued their actual possession over the subject property, taking into
consideration their supervision of the apartment's construction, their execution of lease contracts over the units, and
193
Dacquel's failure to prove that he had instructed the Sotelos to act in his stead. Having remained a mortgagee in the
transaction, the issuance of a TCT in favor of Dacquel did not vest upon him ownership of the property and does not
preclude its cancellation. The CA granted attorney's fees to the Sotelos while denying their prayer for moral
damages.19 The July 12, 2012 CA Decision20 disposed of the Sotelos' appeal in the following manner:
WHEREFORE, premises considered, the appeal is GRANTED. The Decision of the Regional Trial Court, Branch 74,
Malabon City in Civil Case No. 3099-MN is hereby ANNUL[L]ED and SET ASIDE. Judgment is hereby rendered
declaring that the Deed of Sale executed between the parties is an equitable mortgage rather than one of absolute
sale over the subject property, and that the obligation for which it has been constituted has been extinguished.
Appellee Arturo Dacquel is hereby ordered to reconvey the subject property to appellants, and to cease and desist
from collecting rentals thereon. The Register of Deeds of Malabon City is hereby ordered to cancel TCT No. M-10649
issued to appellee and to issue a new TCT in the name of appellants, while the City Assessor of Malabon is hereby
ordered to cancel the Tax Declarations in the name of appellee Arturo Dacquel. Finally, appellee Arturo Dacquel is
hereby ordered to pay appellants attorney's fees in the amount of Php100,000.00.
Finding a reiteration of the issues raised in the appeal, the CA likewise denied22 Dacquel's Motion for
Reconsideration.23 Thus, this Petition.
Petitioner Dacquel's Arguments:
Dacquel insists on the validity of the September 1, 1994 Deed of Sale. He asserts his lawful ownership over the subject
property, and that the Decision declaring the nullity of his title and ordering the reconveyance of the subject property
to the Sotelos is grave error on the part of the CA. The parties clearly intended to be bound by the Deed of Sale and
what was concealed was only the actual price of the subject property. Dacquel puts premium on the notarial seal on
the Deed of Sale, which gave the document the presumption of regularity.
The price of P140,000.00 was not a grossly inadequate price for the sale of the subject property as there were no
improvements at the time of the transaction. All the requisites of dacion en pago attended their contract. Moreover,
the absence of his authorization empowering Ernesto to construct and manage the apartment was on account of their
relationship, being brothers-in-law. Dacquel remained in constructive possession of the subject property as he collected
in his name the rental for four apartment units and even claimed the other three units in the same manner. He also
asserts that the permits, billings, and checks in the name of Ernesto likewise did not prove the Sotelos' ownership of
the subject property. As regards the award of attorney's fees, Dacquel disputes the same as he was not guilty of bad
faith in litigating his case against the Sotelos.24
Respondents-Spouses Sotelo's Position.
The Sotelos maintain that the transaction was an equitable mortgage. They rest their claim with the findings by the CA
that gross inadequacy of the price and the continued possession by the Sotelos of the subject property constituted as
badges of fraud under Articles 1602 and 1604 of the Civil Code against Dacquel, negating the veracity of the September
1, 1994 Deed of Sale.25
Issues:
The main issues to be resolved are (1) whether or not the September 1, 1994 Deed of Sale between petitioner and
respondents-spouses constituted an equitable mortgage; and (2) whether petitioner's title to the subject property
should be nullified and reconveyed to respondents-spouses, and (3) whether or not respondents-spouses are entitled
to attorney's fees.
Our Ruling
The Petition is meritorious in part.
The transaction between petitioner and respondents- spouses was an equitable mortgage.
The relevant provisions of the Civil Code read:
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:
1. When the price of a sale with a right to repurchase is unusually inadequate;
2. When the vendor remains in possession as lessee or otherwise;
3. When upon or after the expiration of the right to repurchase another instrument extending the period of
redemption or granting a new period is executed;
4. When the purchaser retains for himself a part of the purchase price;
5. When the vendor binds himself to pay the taxes on the thing sold;
6. In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any other obligation.
In any of the foregoing cases, any money, fruits or other benefit to be received by the vendee as rent or otherwise
shall be considered as interest which shall be subject to the usury laws.
Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.
The CA correctly declared the subject transaction between petitioner and respondents-spouses as an equitable
mortgage.
Decisive for the proper determination of the true nature of the transaction between the parties is their intent, shown
not merely by the contract's terminology but by the totality of the surrounding circumstances, such as the relative
situations of the parties at that time; the attitudes, acts, conduct, and declarations of the parties; the negotiations
between them leading to the deed; and generally, all pertinent facts having a tendency to fix and determine the real
nature of their design and understanding.26 When in doubt, courts are generally inclined to construe a transaction
purporting to be a sale as an equitable mortgage, which involves a lesser transmission of rights and interests over the
property in controversy.27
Here, the CA applied these principles and aptly found two badges of fraud against petitioner - gross inadequacy of price
in the Deed of Sale and continued possession of the subject property by respondents-spouses as debtors of petitioner.
The court a quo discussed its own findings of fact at length, which this Court deems already sufficient and
persuasive, viz.:
First, there was gross inadequacy in the purchase price. The Deed of Absolute Sale shows that the consideration for
the subject property was only Php140,000.00. While no evidence definitely establishes this as the market value of
the property for 1994, both parties agree that the proper consideration for the same should be in the amount of at
least Php 1 Million: [respondents-spouses] averred that the price per square meter of the 350 square meter was
Php5,000.00, while [petitioner] stressed that the property was transferred to him in satisfaction of [respondents-
spouses] debts to him amounting to more that Php 1 Million. It is also noteworthy that the property was mortgaged
for the amount of Php500,000.00, which [petitioner] did not contest, and for which an annotation has been made on
[respondents-spouses'] title. Furthermore, We observed that the stated Php140,000.00 included the improvements
already constructed at the time. Thus, in light of these, that only Php140,000.00 was the agreed upon consideration
for the subject property strikes Us as suspect and grossly inadequate.
194
Relevantly, [petitioner's] version that the [respondents-spouses] owed him debts amounting to more than Php 1
Million, with the amount only being stated in the Deed of Sale as a tax evasion device, fails to inspire belief. The
alleged debts have not been duly proved. [Petitioner's] only evidence of such obligations were statements in a diary
which he himself made. There are several reasons why We find such statements inadequate to prove the supposed
indebtedness. First, there exists no proof that these amounts were actually sent to and received by [respondents-
spouses]. Second, [petitioner] never even detailed how he transmitted these to [respondents-spouses], which could
have lent his testimony some credibility. Third, there is also no proof that these diary entries were even indeed made
on the dates these loans were purportedly contracted, so as to show that these diary entries were not merely
fabricated or made at a later date to conform to [petitioner's] position. Without such crucial proof, these entries are
thus merely self-serving, and consequently, have no probative value to show that [respondents-spouses] were indeed
indebted to [petitioner] in those amounts.
As a consequence, [petitioner's] failure to prove [respondents-spouses] indebtedness of more than Php 1 Million
eliminates the construction that the Deed of Sale was one of dacion en pago for such a substantial obligation x x x.
However, it bears stressing that the non-existence of the debt does not prevent Us from noting that [petitioner]
likewise agreed that the P140,000.00 expressed in the Deed was too low to correspond to the actual market value
of the property.
Moreover, even granting that the [respondents-spouses] were indeed indebted to [petitioner] in the amount insisted
by the latter, a reading of the Deed shows that the subject property was clearly conveyed to [petitioner] for only
Php140,000.00. Nothing in the Deed shows that the property was conveyed for a consideration other than the amount
appearing thereon. x x x
xxxx
Second, the [respondents-spouses], as vendors of the subject property. remained in possession of the same. Since
the Deed was signed in I 994, [respondents-spouses} possessed the property by actual possession thereof, as when
they had supervised the construction of the apartment, and subsequently, as lessors, when they entered into lease
contracts with tenants and received payment [therefor].
x x x [Petitioner] averred that he had authorized [Ernesto] to supervise the construction and the management of the
apartment. Again, however, [petitioner] presented no proof of such authorization, or details as to the date, time, and
place when he made such authorization, which he should have recalled x x x as this was a matter of utmost
importance. [Petitioner] never even demanded an accounting of the expenses for the construction. x x x We note
that the building and electricity permits for the property were in [Ernesto's] name, and that when the apartment was
finished, [Ernesto] first managed the same. The inevitable conclusion that emerges is that [Ernesto] independently
carried out his plan to build and finish the apartment, with [petitioner] only as a creditor who lent him some funds
for the projects.
In addition, [respondents-spouses] have proved, and [petitioner] even confirmed, that when the apartment was
constructed, [respondents-spouses] collected payment, and only from three doors, which is in accord with the
arrangement between the parties. It is a glaring inconsistency that [petitioner] vehemently alleges ownership of the
subject property and the apartment and yet allowed [respondents-spouses] for years to collect from three doors of
the apartment, and even enter into lease contracts with tenants. Such details only persuade Us that it was
[petitioner's right to collect which has been authorized by [respondents-spouses], and which has now been
extinguished, with the debt of Php280,000.00 (Php140,000.00 with 100% interest) having been completely paid.28
Even after the supposed execution of the Deed of Sale, respondents-spouses persisted in exercising the foregoing
acts assertive of their ownership over the subject property. In Sps. Raymundo v. Sps. Bandong,29 it was observed
 that it is contrary to human experience that a person would easily part with his property after incurring a
debt.30 Rather, he would first find means to settle his obligation, and the selling of a property on which the house
that shelters him and his family stands, would only be his last resort.31
The actuations of respondents-spouses persuade that they were preserving their hold on the subject property and had
no intent at all to relinquish their ownership over the same by sale. Moreover, petitioner cannot simply claim that
respondent Ernesto had been acting only in representative capacity on the sole premise that they are brothers-in-law.
Close-knit familial relationships, whether by consanguinity or by affinity, are not presumptive evidence of a contract of
agency on their lonesome.
Also, petitioner cannot correctly argue that his agreement with respondents-spouses constituted dation in payment
or dacion en pago. The case of Filinvest Credit Corporation v. Philippine Acetylene Co. Inc.32 defined this contract, viz.:
Dacion en pago, according to Manresa, is the transmission of the ownership of a thing by the debtor to the creditor
as an accepted equivalent of the performance of obligation. In dacion en pago, as a special mode of payment, the
debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The
undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or
property of the debtor, payment for which is to be charged against the debtor's debt. As such, the essential elements
of a contract of sale, namely, consent, object certain, and cause or consideration must be present. In its modem
concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered
as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale,
while the debt is considered as the purchase price.33 (Emphasis supplied.)
Glaring legal and factual reasons debunk petitioner's claim of dacion en pago.
First, the March 1999 Dacion en Pago34 submitted by petitioner apparently pertains to another debt that was not
proven to have transpired.ℒαwρhi৷ The relevant stipulations in the Dacion en Pago are hereafter reproduced:
WHEREAS, I, ARTURO A. DACQUEL xxx am the registered owner of the parcel of residential lot with improvement
situated in Malabon, Metro Manila, more particularly described [under TCT No. M-10649;
WHEREAS, I acquired by purchase, the above parcel of land from the spouses ERNESTO SOTELO and FLORA DACQUEL
for a consideration of ONE MILLION FOUR HUNDRED FIFTY THOUSAND PESOS (P1,450,000.00), of which amount of
FIVE HUNDRED THOUSAND PESOS (P500,000.00) remains as balance which I have not yet paid to the spouses;
WHEREAS, I have constructed a seven-door apartment building on the said parcel of land, each door or unit
designated as "37-A", "37-B", "37-C", "37-D", "3 7-E", "37-F", and "37-G" xxx;
WHEREAS, in full payment of the purchase price of the aforesaid lot from the Sotelo-spouses, I, as the Vendee of the
said Sotelo spouses, as the Vendors thereof, have agreed that three (3) of the apartment units designated as 37-A,
3 7-B and 37-C which are all successive and adjoining apartments xxx shall be ceded, conveyed, and transferred
unto the said spouses xxx, together with land on which the said apartment doors are erected;
NOW THEREFORE, for and in consideration of the foregoing premises, and by way of my full payment of the unpaid
balance for the lot equivalent to the amount of FIVE HUNDRED THOUSAND PESOS (P500,000.00), I, ARTURO F.
DACQUEL, hereby cede, convey, transfer by way of DACION EN PAGO, in favor of the spouses ERNESTO SOTELO and
FLORA DACQUEL, their heirs, assigns, and successors-in-interest, THREE (3) apartment units designated as 37-A,
37-B, and 37-C xxx, together with land on which the said apartment doors are erected thereon, including the ground
space surrounding the 3-door apartments, in full liquidation of any indebtedness to said spouses by way of the unpaid
purchase price of the above-described land.
This Dacion en Pago constituted petitioner Dacquel as the buyer of the subject lot and the respondents-spouses Sotelo
as the vendors, whereby Dacquel allegedly owed to the Sotelos the remaining amount of P500,000.00 out of the
purported P1,450,000.00 purchase price. These stipulations were not at all shown to actually exist, or to be the same,
or at least connected to the parties' original transaction. While petitioner claims that this dation in payment stemmed
195
from the P140,000.00 he had loaned to respondents-spouses, no reference to the said established debt was made in
petitioner's Dacion en Pago. If anything, the existence of the Dacion en Pago relied on the truth of the September 1,
1994 Deed of Sale, which, unfortunately for petitioner, turned out to be not a sale but only an equitable mortgage.
Petitioner failed to adduce acceptable evidence that this sale actually transpired, more so as respondents-spouses
consistently denied that they sold the subject property to petitioner.
Second, even if the truth of this second transaction would be sustained, both parties still must be shown to have
mutually agreed to the dation in payment. Records, however, fail to disclose any such consent on the part of
respondents-spouses. Instead of an agreement, the said Dacion en Pago appears to be a mere unilateral affidavit
executed by petitioner. That both petitioner and respondents-spouses left this document unsigned and unnotarized
does not help the present appeal. No witnesses even attested to the alleged Dacion En Pago. This Dacion En Pago rests
on claims that are too self-serving to be considered, and bare allegations have no probative value in court.
Title may be nullified and real property may be reconveyed in case of equitable mortgage.
As the transaction between the parties herein was demonstrated to be one of equitable mortgage, petitioner did not
become owner of the subject property but a mere mortgagee thereof. As such, petitioner was bound by the prohibition
against pactum commissorium as embodied in Article 2088 of the Civil Code:
Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any
stipulation to the contrary is null and void.
The mortgagee's consolidation of ownership over the mortgaged property upon the mortgagor's mere failure to pay
the obligation is the essence of pactum commissorium.36 The mortgagor's default does not operate to automatically
vest on the mortgagee the ownership of the encumbered property. This Court has repeatedly declared such
arrangements as contrary to morals and public policy and thus void. If a mortgagee in equity desires to obtain title to
a mortgaged property, the mortgagee's proper remedy is to cause the foreclosure of the mortgage in equity and buy
it at a foreclosure sale.
Having proceeded to cause the cancellation of respondents-spouses title to the mortgaged property and its transfer to
his name without availing of the remedy of foreclosure, petitioner can be concluded to have dabbled in the prohibited
practice of pactum commissorium. The transaction is consequently rendered void, and title to the subject property
should be reverted to respondents-spouses.
Attorney's fees are awarded only on factual and legal grounds under Article 2208 of the Civil Code.
Article 2208 of the Civil Code provides the guidelines on recovery of attorney's fees:
Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot
be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur
expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just
and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen's compensation and employer's liability laws;
 (9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation
should be recovered.
In all cases, the attorney's fees and expenses of litigation must be reasonable.
The Court explained the duality of attorney's fees in Benedicto v. Villaflores:37
Attorney's fees, as part of damages, are not necessarily equated to the amount paid by a litigant to a lawyer. In the
ordinary sense, attorney's fees represent the reasonable compensation paid to a lawyer by his client for the legal
services he has rendered to the latter; while in its extraordinary concept, they may be awarded by the court as
indemnity for damages to be paid by the losing party to the prevailing party. Attorney's fees as part of damages are
awarded only in the instances specified in Article 2208 of the Civil Code. As such, it is necessary for the court to make
findings of fact and law that would bring the case within the ambit of these enumerated instances to justify the grant
of such award, and in all cases it must be reasonable.38
The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium
should be placed on the right to litigate.39 They are not to be awarded every time a party wins a suit.40 Being the
exception rather than the rule, an award of attorney's fees requires compelling reason before it may be granted. Parties
still are allowed to stipulate on it beforehand. In the absence of any agreement, however, factual, legal, and equitable
justification must be established to avoid speculation and conjecture surrounding the grant of attorney's fees by the
courts.41
While the CA declared that petitioner's acts forced respondents-spouses to litigate, records show scant reason to
consider the case within the said exception cited under Article 2208. Even when a claimant is compelled to bring his
cause to court or incur expenses to protect his rights, attorney's fees still may not be awarded as part of damages
where no sufficient showing of bad faith could be reflected in a party's persistence in a case other than an erroneous
conviction of the righteousness of his cause.42
No such bad faith was proven against petitioner. On the contrary, both parties were impelled by the honest belief that
their respective actions were justified. The entire legal ruckus was sparked by a series of undocumented transactions
over the subject property, driving both parties into deeper misunderstandings that ended up too complicated and far
too late to be clarified. Yet, in the records, both petitioner and respondents-spouses appeared to be merely in pursuit
of their own interests. Respondents-spouses' victory should not earn petitioner an automatic label of bad faith and a
correlative award of attorney's fees.
WHEREFORE, the Petition is GRANTED IN PART. The July 12, 2012 Decision and the October 10, 2012 Resolution of
the Court of Appeals in CA-G.R. CV No. 93939 are AFFIRMED with MODIFICATION in that the award for attorney's
fees in favor of respondents-spouses Ernesto and Flora Sotelo is DELETED.
196
G.R. No. 120747 September 21, 2000
VICENTE GOMEZ, as successor-in-interest of awardee LUISA GOMEZ, petitioner,
vs.
COURT OF APPEALS, City of MANILA acting thru the City Tenants Security Committee now the Urban
Settlement Office, Register of Deeds of Manila, respondents.
Sought to be reversed in this petition for review on certiorari under Rule 45 of the Rules of Court is the decision 1 of the
Court of Appeals in C.A. G.R. Sp. No. 32101 promulgated on 22 February 1995 which annulled and set aside the
decision of the Regional Trial Court of Manila, Branch 12 in Civil Case No. 51930.
Impugned similarly is the resolution2 of the Court of Appeals dated 29 June 1995 denying petitioner's motion for
reconsideration.
Pursuant to the Land for the Landless Program of the City of Manila and in accordance with City Ordinance No. 6880,
the Office of City Mayor issued Resolution No. 16-A,3 Series of 1978, dated 17 May 1978, which effectively set guidelines
and criteria for the award of city home lots to qualified and deserving applicants. Attached to said resolution and made
as integral part thereof was a Contract to Sell4 that further laid down terms and conditions which the lot awardee must
comply with.
On 30 June 1978, the City of Manila, through the City Tenants Security Committee (CTSC) presently known as the
Urban Settlement Office (URBAN), passed Resolution 17-785 which in effect awarded to 46 applicants, 37 homelots in
the former Ampil-Gorospe estate located in Tondo, Manila. Luisa Gomez, predecessor-in-interest of herein petitioner
Vicente Gomez, was awarded Lot 4, Block 1, subject to the provisions of Resolution No. 3-78 of the CTSC and building,
subdivision and zoning rules and regulations.
Consequently, a certificate of award6 dated 02 July 1978 was granted by the CTSC in favor of Luisa Gomez, who paid
the purchase price of the lot in the amount of P3,556.00 on installment basis, 7 said payments being duly covered by
official receipts.
In 1979, Luisa Gomez traveled to the Unites States of America but returned to the Philippines in the same year.
On 18 January 1980, Luisa Gomez finally paid in full the P3,556.00 purchase price of the lot. Despite the full payment,
Luisa still paid in installment an amount of P8,244.00, in excess of the purchase price, which the City of Manila, through
the CTSC, accepted. Additionally, the lot was declared for taxation purposes and the corresponding real estate taxes
thereon paid from 1980-1988. In 1982, Luisa, together with her spouse Daniel, left again for the United States of
America where she died8 on 09 January 1983. She is survived by her husband and four children, namely, Ramona G.
Takorda, Edgardo Gomez, Erlinda G. Pena, and Rebecca G. Dizon. 9
Subsequently, in a memorandum dated 07 February 1984, the Urban Settlements Officer and Member-Executive
Secretary of the CTSC directed the Western Police District, City Hall Detachment, to conduct an investigation regarding
reported violations of the terms and conditions of the award committed by the lot awardees.
Thus, on 23 November 1984, a team headed by Pfc. Reynaldo Cristobal of the Western Police District, proceeded to
the former Ampil-Gorospe estate where the subject lots are located, and conducted an investigation of alleged violations
thereat.
On 19 December 1984, team leader Pfc. Reynaldo Cristobal rendered an investigation report10 addressed to the City
Mayor of Manila, as Chairman of the CTSC, stating, among others, the following findings:
". . . After the said operation, it was found out that of all the lot awardees in the said estate, the following were
confirmed to have violated the terms and conditions of their respective awards as indicated opposite their names, to
wit:
". . . 2. Name of awardee: Daniel Gomez
Address: No. 2557-C Juan Luna St. Tondo, Manila
Violation: The place was found actually occupied by Mrs. Erlinda Perez and her family together with Mr. Mignony
Lorghas and family, who are paying monthly rentals of P210.00 each to Vicente Gomez, brother of awardee. Daniel
Gomez is now presently residing in the United States of America and only returns for vacation once in a while as a
'Balikbayan' . . ."
Thus, on 01 July 1986, the CTSC, headed by then City Mayor Gemiliano Lopez, Jr. as Chairman, issued Resolution No.
015-86,11 adopting the findings of the investigation report submitted by Pfc. Cristobal, and ordering the cancellation of
the lot awards of Daniel Gomez and other awardees who were found to have committed violations, and further declaring
the forfeiture of payments made by said awardees as reasonable compensation for the use of the homelots.
In a letter12 dated 04 August 1986, herein petitioner Vicente Gomez, acting as attorney-in-fact13 of his brother Daniel
Gomez (spouse of Luisa Gomez) asked for reconsideration of the CTSC resolution revoking the award of the lot.
On 28 June 1988, Daniel Gomez, spouse of awardee Luisa Gomez, died in the United States of America. Eventually, on
01 February 1989, the surviving children of the deceased spouses, who were American citizens and residents of the
United States of America, executed an affidavit of adjudication with deed of donation14 disposing gratuitously Lot No.
1, Block 4, in-Favor of their uncle Vicente Gomez.
On 20 February 1989, petitioner Vicente Gomez filed a memorandum15 before the CTSC praying that Resolution 15-86
be set aside and that the award of the lot be restored to Luisa Gomez, or her heirs or successor-in-interest, preferably
Vicente Gomez.
Thereafter, two supplemental memoranda, dated 26 July 198916 and 10 January 1990,17 were submitted by petitioner
before the CTSC reiterating the prayer in the initial memorandum.
On 05 February 1990, herein petitioner filed before the Regional Trial Court (RTC) of Manila, Branch 12, a petition for
certiorari, prohibition and mandamus docketed as Civil Case No. 90-51930, entitled "Vicente Gomez, as successor-in-
interest of Awardee, Luisa Gomez, petitioner, versus City Tenant's Security Committee (now Urban Settlement Office)
and Register of Deeds of Manila, respondents."
In an order18 dated 24 April 1990, the lower court directed the petitioner to amend its petition so as to implead the
proper government agency.
Hence, petitioner filed an amended petition19 impleading the City of Manila as respondent, to which the latter submitted
an answer.20
Accordingly, after the presentation of evidence, the lower court promulgated its decision 1 dated 20 January 1993, the
2 the bold distinctions between these species of contracts, to wit:
decretal portion of which reads:
Wherefore, the petition is hereby granted:
197
"1. Ordering the City of Manila through its agency the City Tenants Security Committee (now Urban Settlement
Office) to set aside the order of cancellation of the award for Lot No. 4, Block 1 (formerly of the Ampil-Gorospe
estate) in favor of Luisa Gomez, her heirs and successor-in-interest, the herein petitioner;
"2. Prohibiting the City of Manila through its agency including the Register of Deeds of Manila from awarding the
same lot and issuing the corresponding certificate of title therefor to any other person;
"3. Ordering the City of Manila through its agency the City Tenant's Security Committee (now Urban Settlement
Office) to execute a Deed of Absolute Sale over the aforementioned lot in favor of the petitioner as successor-in-
interest of the awardee and further ordering them to stop and/or refrain from disturbing the peaceful physical
possession thereof of (sic) the petitioner; and
"4. Ordering the City of Manila through its agency the City Tenant's Security Committee (now Urban Settlement
Office) to refund to the petitioner his overpayments amounting to P8,244.00 and to pay the costs of suit."
On appeal, the Court of Appeals reversed the lower court's decision prompting petitioner to file a motion for
reconsideration which the appellate court denied via its assailed resolution dated 29 June 1995.
Hence, the instant appeal where the core of controversy revolves around the propriety of CTSC's act of canceling the
lot award, through Resolution No. 015-86, and further declaring the forfeiture of amounts paid by the awardee, as
reasonable compensation for the use of the home lot.
The petition is unmeritorious.
A thorough scrutiny of the records and an even more exhaustive perusal of the evidence, both documentary and
testimonial, would lead to the inevitable conclusion that the fact of cancellation of the award covering Lot 4, Block 1,
by the City of Manila, acting through the CTSC, was properly exercised within the bounds of law and contractual
stipulation between the parties.
Viewed broadly, petitioner anchors his case on the premise, albeit erroneous, that upon full payment of the purchase
price of the lot in January 1980, Luisa Gomez, actual awardee, already acquired a vested right over the real property
subject of the present controversy. Thus, according to petitioner, upon the death of Luisa Gomez on 09 January 1983,
the alleged vested right was transmitted by operation of law to her lawful heirs, pursuant to Article 777 of the Civil
Code. Additionally, petitioner submits that by virtue of the affidavit of adjudication with Deed of Donation executed on
01 February 1989 in his favor by the surviving children of Luisa, he, in effect, became the successor-in-interest of Luisa
and thus entitled to whatever rights enjoyed by the latter over the property.
In the light of existing law and jurisprudence and based on the evidence adduced, this Court finds difficulty giving
credence and weight to petitioner's submissions. We therefore rule that the cancellation of the award of Lot 4, Block
1, through the expediency of Resolution No. 015-86, was proper.
Primarily, it must be stressed that the contract entered into between the City of Manila and awardee Luisa Gomez was
not one of sale but a contract to sell, which, under both statutory and case law, has its own attributes, peculiarities
and effects.
Speaking through Mr. Justice Florenz Regalado, this Court in Adelfa Properties, Inc. vs. Court of Appeals, 22 mapped out
"In a contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell,
by agreement, the ownership is reserved in the vendor and is not to pass until the full payment of the price. In a
contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or
rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of the purchase price,
such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents
 the obligation of the vendor to convey title from being effective. Thus, a deed of sale is considered absolute in nature
where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until the full
payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer
fails to pay within a fixed period."
To our mind, however, this pronouncement should not curtail the right of the parties in a contract to sell to provide
additional stipulations, nor bar them from imposing conditions relative to the transfer of ownership.
To be sure, a contract of sale may either be absolute or conditional. One form of conditional sales is what is now
popularly termed as a "Contract to Sell", where ownership or title is retained until the fulfillment of a positive suspensive
condition normally the payment of the purchase price in the manner agreed upon.23 (Emphasis ours)
From the above disquisition in Galang and applying Article 1306 of the Civil Code, the contracting parties are accorded
the liberality and freedom to establish such stipulations, clauses, terms and conditions as they may deem convenient,
provided the same are not contrary to law, morals, good custom, public order or public policy. In the law on contracts,
such fundamental principle is known as the autonomy of contracts.
Under the present circumstances, we see no hindrance that prohibits the parties from stipulating other lawful
conditions, aside from full payment of the purchase price, which they pledge to bind themselves and upon which
transfer of ownership depends.
In the instant case, we uphold the Contract to Sell, duly annexed and attached to Resolution 16-A, which explicitly
provides for additional terms and conditions upon which the lot awardees are bound. Although unsigned, the Contract
to Sell, in addition to the provisions of Resolution 16-A, constitutes the law between the contracting parties. After all,
under the law there exists a binding contract between the parties whose minds have met on a certain matter
notwithstanding that they did not affix their signatures to its written form. 24
For a contract, like a contract to sell, involves a meeting of minds between two persons whereby one binds himself,
with respect to the other, to give something or to render some service. Contracts, in general, are perfected by mere
consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are
to constitute the contract. The offer must be certain and the acceptance absolute. 25
As to the matter of acceptance, the same may be evidenced by some acts, or conduct, communicated to the offeror,
either in a formal or an informal manner, that clearly manifest the intention or determination to accept the offer to buy
or sell.26
In the case at bar, acceptance on the part of the vendee was manifested through a plethora of acts, such as payment
of the purchase price, declaration of the property for taxation purposes, and payment of real estate taxes thereon, and
similar acts showing vendee's assent to the contract.
Verily, Resolution 16-A and the Contract to Sell which was annexed, attached and made to form part of said resolution,
clearly laid down the terms and conditions which the awardee-vendee must comply with. Accordingly, as an awardee,
Luisa Gomez, her heirs and successors-in-interest alike, are duty-bound to perform the correlative obligations
embodied in Resolution 16-A and the Contract to-Sell.
Resolution 16-A, Series of 1978, explicitly provides that aside from the requirement of Filipino citizenship and legal
age, the basic criteria for award of the lot pursuant to the Land for the Landless Program of the City of Manila shall be
the following:
198
"a) Occupancy — The applicant must be the legal and actual or physical occupant of the lot in question at the time
of its acquisition by the City. He must be the owner of the house and lot, must be using the same for his residential
purposes, and must have had a lessee-lessor relationship with the previous owner of the land or landed estate of
which the subject lot is a part.
"b) Non-ownership of land — The applicant and/or his spouse, if he is married, must not be an owner of any parcel
of land in Manila, Metropolitan Manila or elsewhere in the Philippines. Neither must he and/or his spouse be a
prospective owner or a buyer on installment basis of any lot other than that which he is occupying and for which he
is applying for award from the City.
"c) Capacity to pay — The applicant must have such financial means and/or support as will enable him to make
regular payments of amortizations or installments for the lot if the same is awarded to him."
Of equal importance are the essential terms and conditions embraced in the Contract to Sell, which awardee Luisa
Gomez, her heirs and successors-in-interest, violated, to wit:
". . . Par.(3). The vendee shall occupy and use the lot exclusively for his/her residential purpose . . .
". . . Par. (5). The vendee hereby warrants and declares under oath that he/she is a bona fide and actual occupant
and tenant of the lot; . . . and that he/she fully understands that any false statement or misrepresentation hereof
(sic) shall be sufficient cause for the automatic cancellation of his/her rights under this agreement as well as ground
for criminal prosecution.
"Par. (6). Until complete payment of the purchase price and compliance with all the vendee's obligations herein, title
to the lot remains in the name of the owner. During the effectivity of this agreement, however, the owner may
transfer its title or assign its rights and interest under this agreement to any person, corporation, bank or financial
institution.
"Title shall pass to the vendee upon execution of a final deed of sale in his/her favor. . . .
"Par. (8). In order not to defeat the purpose of this social land reform program of the City of Manila. and to prevent
real estate speculations within twenty years from complete payment of the purchase price and execution of the final
deed of sale, the lot and residential house or improvement thereon shall not be sold, transferred, mortgaged, leased
or otherwise alienated or encumbered without the written consent of the City Mayor.
"Par. (9). During the effectivity of this agreement, the residential house or improvement thereon shall not be leased,
sold, transferred or otherwise alienated by the vendee without the written consent of the owner. . .
"Par. (14). In the event that the vendee dies before full payment of the purchase price of the lot, his/her surviving
spouse, children heirs and/or successors-in-interest shall succeed in all his/her rights and interest, as well as assume
all/his/her obligations under this agreement.
"Par. (15). This agreement shall be binding upon the heirs. executors and administrators of the vendee." (emphasis
ours)
Petitioner urges that awardee Luisa Gomez did not commit any violation of the lot award. On the contrary, the records
would indubitably show that Luisa Gomez, including her heirs and successors-in-interest, have performed acts that
constitute gross, if not brazen, violation of the aforementioned terms and conditions of the award, as evidenced by the
investigation report submitted by Pfc. Cristobal, dated 19 December 1984.
Results of the investigation conducted on 23 November 1984, reveal that the lot was actually occupied and leased by
a certain Erlinda Perez and Mignony Lorghas, together with their respective families, who were paying rentals to
petitioner Vicente Gomez for the lease of the subject premises.
Moreover, in a conference held on 13 January 1989 at the Office of the Acting Urban Settlement Officer, Lorghas
admitted that she has been leasing the property and paying rent to petitioner Vicente Gomez, thus: 27
"Atty. Bernardo: Mrs. Lorghas, how long have you been renting the property?
Mrs. Lorghas: I was living there since 1960 until today. I was renting a small room downfloor (sic). When the family
of Mr. Gomez died, kami na ang tumira sa itaas until now.
Atty. Bernardo: Magkano ang upa mo?
 Mrs. Lorghas: P300 a month.
Atty. Bernardo: Kanino?
Mrs. Lorghas: Kay Vicente Gomez.
Atty. Bernardo: Meron bang resibo?
Mrs. Lorghas: Wala po.
Atty. Bernardo: Noong 1973, kayo na rin ang nakatira sa lugar ni Gomez.
Mrs. Lorghas: Opo."
Certainly, said acts constitute a brazen transgression of Resolution 16-A and clear contravention of the Contract to
Sell, specifically par. (3), (8) and (9) thereof.
The contract provides in no uncertain terms, that the abovementioned terms and conditions shall bind the heirs,
executors and administrators of the vendee. The contract further states that breach thereof would result to the
automatic cancellation of the vendee's rights thereunder.
Thus, par.(10) (b) (a) of the Contract to Sell, which reads:
". . . any violation of the terms and conditions of this agreement shall automatically cause the cancellation of the
vendee's rights under this agreement without necessity of prior notice or judicial declaration . . ."
Such kind of stipulation was upheld by this Court in the Adelfa case where we categorically declared that Article 1592
of the Civil Code, which requires rescission either by judicial action, or notarial act, does not apply to a contract to
sell.28
Moreover, judicial action for rescission of a contract is not necessary where the contract provides for automatic
rescission in case of breach,29 as in the contract involved in the present controversy.
Likewise, this Court sustains the forfeiture of the payments made by awardee as reasonable compensation for the use
of the lot. At this juncture, par. (1) of the Contract to Sell furnishes support to this conclusion:
". . . In case of the cancellation of the vendee's rights under this agreement as hereinafter stipulated, all payments
made by him/her shall be forfeited and considered as rentals for the use of the lot . . . "
Further, Article 1486 of the Civil Code provides that a stipulation that the installments or rents paid shall not be returned
to the vendee or lessee shall be valid insofar as the same may not be unconscionable under the circumstances. 30
Applying the foregoing, we are of the considered view that the payment of the purchase price of P3,556.00, constitutes
fair and reasonable rental for the period in which said property was under the control of awardee Luisa Gomez, her
heirs and successors-in-interest. Undeniably, the awardee together with her heirs and successors-in-interest, have
gained benefits, financial or otherwise, for a period of eight years — from the time of actual award of the lot to the
time of cancellation thereof (1978-1986).
Nonetheless, we ought to stress that in the present case, forfeiture of the installments paid as rentals, only applies to
the purchase price of P3,556.00 and not to the overpayment of the amount of P8,244.00.
Under these circumstances, the vendor should refund the amount of P8,244.00 representing the overpayment made,
plus interest, to be computed in accordance with the "rule of thumb" enunciated in the landmark case of Eastern
Shipping Lines, Inc. vs. Court of Appeals 31 and reiterated in the case of Philippine National Bank vs. Court of Appeals.32
199
For us to uphold the forfeiture of the amount representing the overpayment would be to revolt against the dictates of
justice and fairness. A contrary ruling would unjustly enrich the vendor to the prejudice of the vendee.
In the same vein, the provisions of Article 777 of the Civil Code notwithstanding, we hold that the surviving children of
awardee Luisa Gomez are not qualified transferees of Lot 4, Block 1 for failure to conform with the prerequisites set by
Resolution 16-A, to wit, Filipino citizenship and actual occupancy, which in the present case, are basic criteria for the
award of the lot, pursuant to the "Land for the Landless Program" of the City of Manila.
The records reveal that the children of Luisa Gomez are American citizens and permanent residents of the United States
of America. Notably, Resolution 16-A specifically enumerates Filipino citizenship and actual occupancy of the lot for
residential purposes, as qualifications for entitlement to the lot award. For this court to consider said surviving children
as qualified awardee-transferees would render illusory the purposes for which Resolution 16-A and the "Land for the
Landless Program" of the City of Manila were adopted.
Even assuming arguendo that the surviving children of Luisa Gomez are entitled to the lot by virtue of Article 777 of
the Civil Code, said heirs nevertheless abandoned their right when they violated the terms and conditions of the award
by donating the subject property to petitioner Vicente Gomez.
As paragraph (15) of the agreement provides that the heirs of the vendee shall be bound thereby, it is then incumbent
upon said heirs to render strict compliance with the provisions thereof.
In particular, paragraph (8) of the Contract proscribes the sale, transfer, mortgage, lease, alienation or encumbrance
of the lot, residential house, or improvement thereon, without the written consent of the City Mayor, within a period of
twenty (20) years from complete payment of the purchase price and execution of the final deed of sale. The execution
of the Deed of Donation by the surviving children of Luisa Gomez on February 1, 1989, in favor of Vicente Gomez, was
clearly within the prohibited period of 20 years from the full payment of the purchase price on January 18, 1980.
Without doubt, the prohibition applies to them.
Furthermore, the subject lot and residential house were occupied by, and leased to, third persons, in crystalline and
evident derogation of the terms of the award.
WHEREFORE, premises considered, the instant petition is DISMISSED for lack of merit, and the assailed decision of the
Court of Appeals with respect to the cancellation of the award of Lot 4, Block 1, is AFFIRMED SUBJECT TO
MODIFICATION as to the forfeiture of amounts paid by the vendee.
As modified, the City of Manila, is hereby ordered to refund with dispatch the amount of P8,244.00 representing the
overpayment made by petitioner plus interest.
G.R. No. 137290 July 31, 2000
SAN MIGUEL PROPERTIES PHILIPPINES, INC., petitioner,
vs.
SPOUSES ALFREDO HUANG and GRACE HUANG, respondents.
This is a petition for review of the decision, 1 dated April 8, 1997, of the Court of Appeals which reversed the decision
of the Regional Trial Court, Branch 153, Pasig City dismissing the complaint brought by respondents against petitioner
for enforcement of a contract of sale.
Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation engaged in the purchase and sale of real
properties. Part of its inventory are two parcels of land totalling 1, 738 square meters at the corner of Meralco Avenue
and General Capinpin Street, Barrio Oranbo, Pasig City, which are covered by TCT Nos. PT-82395 and PT-82396 of the
Register of Deeds of Pasig City.
On February 21, 1994, the properties were offered for sale for ₱52,140,000.00 in cash. The offer was made to Atty.
Helena M. Dauz who was acting for respondent spouses as undisclosed principals. In a letter 2 dated March 24, 1994,
Atty. Dauz signified her clients’ interest in purchasing the properties for the amount for which they were offered by
petitioner, under the following terms: the sum of ₱500,000.00 would be given as earnest money and the balance would
be paid in eight equal monthly installments from May to December, 1994. However, petitioner refused the counter-
offer.
On March 29, 1994, Atty. Dauz wrote another letter3 proposing the following terms for the purchase of the
properties, viz:
This is to express our interest to buy your-above-mentioned property with an area of 1, 738 sq. meters. For this
purpose, we are enclosing herewith the sum of ₱1,000,000.00 representing earnest-deposit money, subject to the
following conditions.
1. We will be given the exclusive option to purchase the property within the 30 days from date of your acceptance
of this offer.
2. During said period, we will negotiate on the terms and conditions of the purchase; SMPPI will secure the
necessary Management and Board approvals; and we initiate the documentation if there is mutual agreement
between us.
3. In the event that we do not come to an agreement on this transaction, the said amount of ₱1,000,000.00 shall
be refundable to us in full upon demand. . . .
Isidro A. Sobrecarey, petitioner’s vice-president and operations manager for corporate real estate, indicated his
conformity to the offer by affixing his signature to the letter and accepted the "earnest-deposit" of ₱1 million. Upon
request of respondent spouses, Sobrecarey ordered the removal of the "FOR SALE" sign from the properties.
Atty. Dauz and Sobrecarey then commenced negotiations. During their meeting on April 8, 1994, Sobrecarey informed
Atty. Dauz that petitioner was willing to sell the subject properties on a 90-day term. Atty. Dauz countered with an
offer of six months within which to pay.
On April 14, 1994, the parties again met during which Sobrecarey informed Atty. Dauz that petitioner had not yet acted
on her counter-offer. This prompted Atty. Dauz to propose a four-month period of amortization.
200
On April 25, 1994, Atty. Dauz asked for an extension of 45 days from April 29, 1994 to June 13, 1994 within which to
exercise her option to purchase the property, adding that within that period, "[we] hope to finalize [our] agreement on
the matter."4 Her request was granted.
On July 7, 1994, petitioner, through its president and chief executive officer, Federico Gonzales, wrote Atty. Dauz
informing her that because the parties failed to agree on the terms and conditions of the sale despite the extension
granted by petitioner, the latter was returning the amount of ₱1 million given as "earnest-deposit."5
On July 20, 1994, respondent spouses, through counsel, wrote petitioner demanding the execution within five days of
a deed of sale covering the properties. Respondents attempted to return the "earnest-deposit" but petitioner refused
on the ground that respondents’ option to purchase had already expired.
On August 16, 1994, respondent spouses filed a complaint for specific performance against petitioner before the
Regional Trial Court, Branch 133, Pasig City where it was docketed as Civil Case No. 64660.
Within the period for filing a responsive pleading, petitioner filed a motion to dismiss the complaint alleging that (1)
the alleged "exclusive option" of respondent spouses lacked a consideration separate and distinct from the purchase
price and was thus unenforceable and (2) the complaint did not allege a cause of action because there was no "meeting
of the minds" between the parties and, therefore, no perfected contract of sale. The motion was opposed by
respondents.
On December 12, 1994, the trial court granted petitioner’s motion and dismissed the action. Respondents filed a motion
for reconsideration, but it was denied by the trial court. They then appealed to the Court of Appeals which, on April 8,
1997, rendered a decision6 reversing the judgment of the trial court. The appellate court held that all the requisites of
a perfected contract of sale had been complied with as the offer made on March 29, 1994, in connection with which
the earnest money in the amount of ₱1 million was tendered by respondents, had already been accepted by petitioner.
The court cited Art. 1482 of the Civil Code which provides that "[w]henever earnest money is given in a contract of
sale, it shall be considered as part of the price and as proof of the perfection of the contract." The fact the parties had
not agreed on the mode of payment did not affect the contract as such is not an essential element for its validity. In
addition, the court found that Sobrecarey had authority to act in behalf of petitioner for the sale of the properties.7
Petitioner moved for reconsideration of the trial court’s decision, but its motion was denied. Hence, this petition.
Petitioner contends that the Court of Appeals erred in finding that there was a perfected contract of sale between the
parties because the March 29, 1994 letter of respondents, which petitioner accepted, merely resulted in an option
contract, albeit it was unenforceable for lack of a distinct consideration. Petitioner argues that the absence of agreement
as to the mode of payment was fatal to the perfection of the contract of sale. Petitioner also disputes the appellate
court’s ruling that Isidro A. Sobrecarey had authority to sell the subject real properties.8
Respondents were required to comment within ten (10) days from notice. However, despite 13 extensions totalling 142
days which the Court had given to them, respondents failed to file their comment. They were thus considered to have
waived the filing of a comment.
The petition is meritorious.
In holding that there is a perfected contract of sale, the Court of Appeals relied on the following findings: (1) earnest
money was allegedly given by respondents and accepted by petitioner through its vice-president and operations
manager, Isidro A. Sobrecarey; and (2) the documentary evidence in the records show that there was a perfected
contract of sale.
With regard to the alleged payment and acceptance of earnest money, the Court holds that respondents did not give
the ₱1 million as "earnest money" as provided by Art. 1482 of the Civil Code. They presented the amount merely as a
deposit of what would eventually become the earnest money or downpayment should a contract of sale be made by
them. The amount was thus given not as a part of the purchase price and as proof of the perfection of the contract of
sale but only as a guarantee that respondents would not back out of the sale. Respondents in fact described the amount
as an "earnest-deposit." In Spouses Doromal, Sr. v. Court of Appeals,9 it was held:
. . . While the ₱5,000 might have indeed been paid to Carlos in October, 1967, there is nothing to show that the
same was in the concept of the earnest money contemplated in Art. 1482 of the Civil Code, invoked by petitioner, as
signifying perfection of the sale. Viewed in the backdrop of the factual milieu thereof extant in the record, We are
more inclined to believe that the said ₱5,000.00 were paid in the concept of earnest money as the term was
understood under the Old Civil Code, that is, as a guarantee that the buyer would not back out, considering that it is
not clear that there was already a definite agreement as to the price then and that petitioners were decided to buy
6/7 only of the property should respondent Javellana refuse to agree to part with her 1/7 share.10
The appellate court opined that the failure to agree on the terms of payment was no bar to the perfection of the sale
because Art. 1475 only requires agreement by the parties as to the price of the object. This is error. In Navarro v.
Sugar Producers Cooperative Marketing Association, Inc.,14 we laid down the rule that the manner of payment of the
purchase price is an essential element before a valid and binding contract of sale can exist. Although the Civil Code
does not expressly state that the minds of the parties must also meet on the terms or manner of payment of the price,
the same is needed, otherwise there is no sale. As held in Toyota Shaw, Inc. v. Court of Appeals,15 agreement on the
manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure
to agree on the price.16 In Velasco v. Court of Appeals,17 the parties to a proposed sale had already agreed on the
object of sale and on the purchase price. By the buyer’s own admission, however, the parties still had to agree on how
and when the downpayment and the installments were to be paid. It was held:
. . . Such being the situation, it can not, therefore, be said that a definite and firm sales agreement between the
parties had been perfected over the lot in question. Indeed, this Court has already ruled before that a definite
agreement on the manner of payment of the purchase price is an essential element in the formation of a binding and
enforceable contract of sale. The fact, therefore, that the petitioners delivered to the respondent the sum of P10,000
as part of the down-payment that they had to pay cannot be considered as sufficient proof of the perfection of any
purchase and sale agreement between the parties herein under Art. 1482 of the new Civil Code, as the petitioners
themselves admit that some essential matter - the terms of the payment - still had to be mutually covenanted.18

In the present case, the ₱1 million "earnest-deposit" could not have been given as earnest money as contemplated in
Art. 1482 because, at the time when petitioner accepted the terms of respondents’ offer of March 29, 1994, their
contract had not yet been perfected. This is evident from the following conditions attached by respondents to their
letter, to wit: (1) that they be given the exclusive option to purchase the property within 30 days from acceptance of
the offer; (2) that during the option period, the parties would negotiate the terms and conditions of the purchase; and
(3) petitioner would secure the necessary approvals while respondents would handle the documentation.
Thus, it is not the giving of earnest money, but the proof of the concurrence of all the essential elements of the contract
of sale which establishes the existence of a perfected sale.
In the absence of a perfected contract of sale, it is immaterial whether Isidro A. Sobrecarey had the authority to enter
into a contract of sale in behalf of petitioner. This issue, therefore, needs no further discussion.

The first condition for an option period of 30 days sufficiently shows that a sale was never perfected.1âwphi1 As WHEREFORE, the decision of the Court of Appeals is REVERSED and respondents’ complaint is DISMISSED.
petitioner correctly points out, acceptance of this condition did not give rise to a perfected sale but merely to an option
or an accepted unilateral promise on the part of respondents to buy the subject properties within 30 days from the
date of acceptance of the offer. Such option giving respondents the exclusive right to buy the properties within the
period agreed upon is separate and distinct from the contract of sale which the parties may enter. 11 All that respondents
had was just the option to buy the properties which privilege was not, however, exercised by them because there was
a failure to agree on the terms of payment. No contract of sale may thus be enforced by respondents.

Furthermore, even the option secured by respondents from petitioner was fatally defective. Under the second paragraph
of Art. 1479, an accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the
promisor only if the promise is supported by a distinct consideration. Consideration in an option contract may be
anything of value, unlike in sale where it must be the price certain in money or its equivalent. There is no showing here
of any consideration for the option. Lacking any proof of such consideration, the option is unenforceable.

Equally compelling as proof of the absence of a perfected sale is the second condition that, during the option period,
the parties would negotiate the terms and conditions of the purchase. The stages of a contract of sale are as follows:
(1) negotiation, covering the period from the time the prospective contracting parties indicate interest in the contract
to the time the contract is perfected; (2) perfection, which takes place upon the concurrence of the essential elements
of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the price; and
(3) consummation, which begins when the parties perform their respective undertakings under the contract of sale,
culminating in the extinguishment thereof.12 In the present case, the parties never got past the negotiation stage. The
alleged "indubitable evidence"13 of a perfected sale cited by the appellate court was nothing more than offers and
counter-offers which did not amount to any final arrangement containing the essential elements of a contract of sale.
While the parties already agreed on the real properties which were the objects of the sale and on the purchase price,
the fact remains that they failed to arrive at mutually acceptable terms of payment, despite the 45-day extension given
by petitioner.

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G.R. No. 190016 October 2, 2013
FREDERICK VENTURA, MARITES VENTURA-ROXAS, and PHILIP VENTURA (HEIRS OF DECEASED DOLORES
C. VENTURA), Petitioners,
vs.
HEIRS OF SPOUSES EUSTACIO T. ENDAYA and TRINIDAD L. ENDAYA, namely, TITUS L. ENDAYA, ENRICO
L. ENDAYA, and JOSEPHINE ENDAYA-BANTUG,1 Respondents.
Assailed in this petition for review on certiorari2 is the Decision3 dated August 18, 2006 of the Court of Appeals (CA) in
CA-G.R. CV No.68465 which reversed and set aside the Decision 4 dated August 7, 2000 of the Regional Trial Court of
Parañaque City, Branch 258 (RTC) in Civil Case No. 96-0500, dismissing petitioners' complaint for specific performance
seeking to compel respondents to execute a deed of sale over the properties subject of this case.
On June 29, 1981, Dolores Ventura (Dolores) entered into a Contract to Sell5 (contract to sell) with spouses Eustacio
and Trinidad Endaya (Sps. Endaya) for the purchase of two parcels of land covered by Transfer Certificates of Title
(TCT) Nos. 3922256 and (343392) S-679757 (subject properties), denominated as Lots 8 and 9, Block 3, situated in
Marian Road II, Marian Park8 (now Barangay San Martin de Porres),9 Parañaque City, Metro Manila.
The contract to sell provides that the purchase price of ₱347,760.00shall be paid by Dolores in the following manner:
(a) down payment of ₱103,284.00 upon execution of the contract; and (b) the balance of ₱244,476.00 within a 15-
year period (payment period), plus 12% interest per annum (p.a.) on the outstanding balance and 12% interest p.a.
on arrearages. It further provides that all payments made shall be applied in the following order: first, to the
reimbursement of real estate taxes and other charges; second, to the interest accrued to the date of payment; third,
to the amortization of the principal obligation; and fourth, to the payment of any other accessory obligation
subsequently incurred by the owner in favor of the buyer. It likewise imposed upon Dolores the obligation to pay the
real property taxes over the subject properties, or to reimburse Sps. Endaya for any tax payments made by them, plus
1% interest per month. Upon full payment of the stipulated consideration, Sps. Endaya undertook to execute a final
deed of sale and transfer ownership over the same in favor of Dolores. 10
Meanwhile, Dolores was placed in possession of the subject properties and allowed to erect a building
thereon.11 However, on April 10, 1992, before the payment period expired, Dolores passed away. 12
On November 28, 1996, Dolores’ children, Frederick Ventura, Marites Ventura-Roxas, and Philip Ventura (petitioners),
filed before the RTC a Complaint13 and, thereafter, an Amended Complaint14 for specific performance, seeking to
compel Sps. Endaya to execute a deed of sale over the subject properties. In this regard, they averred that due to the
close friendship between their parents and Sps. Endaya, the latter did not require the then widowed Dolores to pay the
down payment stated in the contract to sell and, instead, allowed her to pay amounts as her means would permit. The
payments were made in cash as well as in kind, 15 and the same were recorded by respondent Trinidad herself in a
passbook16 given to Dolores to evidence the receipt of said payments. As of June 15, 1996, the total payments made
by Dolores and petitioners amounted to ₱952,152.00, which is more than the agreed purchase price of ₱347,760.00,
including the 12%interest p.a. thereon computed on the outstanding balance. 17
However, when petitioners demanded18 the execution of the corresponding deed of sale, Sps. Endaya refused.
For their part, Sps. Endaya filed their Answer,19 admitting the execution and genuineness of the contract to sell and
the passbook. However, they countered that Dolores did not pay the stipulated down payment and remitted only a
total of 22 installments. After her death in1992, petitioners no longer remitted any installment. Sps. Endaya also
averred that prior to Dolores' death, the parties agreed to a restructuring of the contract to sell whereby Dolores agreed
to give a "bonus" of ₱265,673.93 and to pay interest at the increased rate of 24% p.a. on the outstanding balance.
202
They further claimed that in April 1996, when the balance of the purchase price stood at ₱1,699,671.69, a final
restructuring of the contract to sell was agreed with petitioners, fixing the obligation at ₱3,000,000.00. Thereafter, the
latter paid a total of ₱380,000.00 on two separate occasions,20 leaving a balance of ₱2,620,000.00. In any event, Sps.
Endaya pointed out that the automatic cancellation clause under the foregoing contract rendered the same cancelled
as early as 1981 with Dolores’ failure to make a down payment and to faithfully pay the installments; 21 hence,
petitioners’ complaint for specific performance must fail. In addition, Sps. Endaya interposed a counterclaim for the
alleged unpaid balance of ₱2,620,000.00, plus damages, attorney's fees and costs of suit. 22
In their Reply with Answer to Counterclaim,23 petitioners denied the existence of any restructuring of the contract to
sell, invoking24 the Dead Man's Statute25 and the Statute of Frauds.26 In turn, Sps. Endaya filed a
Rejoinder,27 challenging the inapplicability of the foregoing principles since the case was not filed against an estate or
an administrator of an estate, and in view of the partial performance of the contract to sell. 28
While the oral depositions of Sps. Endaya were taken at the 4th Municipal Circuit Trial Court of Malvar-Balete, Batangas
on account of their frailty and old age, they, however, did not make a formal offer of their depositions and documentary
evidence. Hence, the case was submitted for decision on the basis of the petitioners' evidence.29
The RTC Ruling
In a Decision30 dated August 7, 2000, the RTC found that petitioners were able to prove by a preponderance of evidence
the fact of full payment of the purchase price for the subject properties.31 As such, it ordered Sps. Endaya to execute
a deed of absolute sale covering the sale of the subject properties in petitioners’ favor and to pay them attorney's fees
and costs of suit.32 Dissatisfied, Sps. Endaya elevated the matter to the CA.
The CA Ruling and Subsequent Proceedings
In a Decision33 dated August 18, 2006 (August 18, 2006 Decision),the CA reversed and set aside the RTC ruling. It
found that petitioners were not able to show that they fully complied with their obligations under the contract to sell.
It observed that aside from the payment of the purchase price and 12% interest p.a. on the outstanding balance, the
contract to sell imposed upon petitioners the obligations to pay 12% interest p.a. on the arrears and to reimburse Sps.
Endaya the amount of the pertinent real estate taxes due on the subject properties, which the former, however, totally
disregarded as shown in their summary of payments.34
Meanwhile, counsel for petitioners, Atty. German A. Gineta, passed away on June 12, 2006, 35 hence, the notice of the
August 18, 2006 Decision sent to him was returned unserved.36 On the other hand, the notice sent to petitioners at
No. 2, Barangay San Martin de Porres, Parañaque City, was likewise returned unserved for the reason "insufficient
address."37 Nonetheless, the CA deemed the service of the said notice to them as valid and complete as of March 9,
2007 pursuant to Section 8,38 Rule 13 of the Rules of Court (Rules). Accordingly, it directed 39 the Division Clerk of
Court to issue the corresponding Entry of Judgment. An Entry of Judgment40 was, thus, made in the CA Book of Entries
of Judgments certifying that the August 18, 2006 Decision became final and executory on March 25, 2007.The records
were thereafter remanded41 to the RTC.
In July 2009, respondent Titus Endaya, heir of Sps. Endaya,42 demanded43 petitioners to vacate the subject properties,
which they refused.
On November 10, 2009, petitioners filed the instant petition invoking the benevolence of the Court to set aside the
CA’s August 18, 2006 Decision and, instead, reinstate the RTC Decision in the interest of substantial justice. They
claimed that they had no knowledge of the demise of their counsel; therefore, they were unable to file a timely motion
for reconsideration before the CA or the proper petition before the Court. Further, they contend that they have proven
full payment of the purchase price within the payment period as required by the contract to sell.
For their part, the heirs of Sps. Endaya (respondents) objected 44 to the belated filing of the petition long after the said
CA Decision had lapsed into finality, especially as the petition raised factual issues that are improper in a petition for
review on certiorari under Rule 45 of the Rules. In any case, they countered that the CA correctly held that petitioners
failed to fully comply with their obligations under the contract to sell; thus, respondents are under no obligation to
execute any deed of sale over the subject properties in favor of petitioners.
On September 22, 2010, the Court gave due course to the petition and required the parties to file their respective
memoranda,45 which they duly submitted.
The Issues Before the Court
The principal issues in this case are: (a) whether or not petitioners’ right to appeal before the Court should be upheld;
and (b) whether or not respondents should execute a deed of sale over the subject properties in favor of petitioners.
The Court's Ruling
To note, while the quality of contingency inheres in a contract to sell, the same should not be confused with a conditional
contract of sale. In a contract to sell, the fulfillment of the suspensive condition will not automatically transfer ownership
to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey
title to the prospective buyer by entering into a contract of absolute sale. 54 On the other hand, in a conditional contract
of sale, the fulfillment of the suspensive condition renders the sale absolute and the previous delivery of the property
has the effect of automatically transferring the seller’s ownership or title to the property to the buyer. 55
Keeping with these principles, the Court finds that respondents had no obligation to petitioners to execute a deed of
sale over the subject properties. As aptly pointed out by the CA, aside from the payment of the purchase price and
12% interest p.a. on the outstanding balance, the contract to sell likewise imposed upon petitioners the obligation to
pay the real property taxes over the subject properties as well as 12% interest p.a. on the arrears.56 However, the
summary of payments57 as well as the statement of account58 submitted by petitioners clearly show that only the
payments corresponding to the principal obligation and the 12% interest p.a. on the outstanding balance were
considered in arriving at the amount of ₱952,152.00. The Court has examined the petition 59 as well as petitioners'
memorandum60 and found no justifiable reason for the said omission. Hence, the reasonable conclusion would therefore
be that petitioners indeed failed to comply with all their obligations under the contract to sell and, as such, have no
right to enforce the same. Consequently, there lies no error on the part of the CA in reversing the RTC Decision and
dismissing petitioners’ complaint for specific performance seeking to compel respondents to execute a deed of sale
over the subject properties.

The petition is partly meritorious. WHEREFORE, the Entry of Judgment in CA-G.R. CV No. 68465 is hereby LIFTED. The Decision dated August 18, 2006
of the Court of Appeals in the said case is, however, AFFIRMED.

Anent the first issue, it is observed that the CA erroneously sent the notice of the assailed August 18, 2006 Decision
to petitioners at No. 2, Barangay San Martin de Porres, Parañaque City, instead of their address of record, i.e., Marian
Road 2, Brgy. San Martin de Porres, Parañaque, Metro Manila 46 and thus, was returned unserved for the reason
"insufficient address."47

The notices of the Entry of Judgment48 and the transmittal letter49 to the Clerk of Court of the RTC indicate this fact.
As such, there was clearly no proper and valid service of the said CA Decision which deprived petitioners of the
opportunity to file a motion for reconsideration before the CA and/or further appeal to the Court. Verily, it would be
unjust and unfair to allow petitioners to suffer the adverse effects of the premature entry of judgment made by the
CA. Therefore, the Court deems it prudent to set aside the foregoing entry and upholds petitioners' right to appeal.

Nevertheless, with respect to the second issue, a thorough review of the records reveals no sufficient reason to warrant
the reversal of the CA’s August 18, 2006 Decision dismissing petitioners' complaint for specific performance which
sought to enforce the contract to sell and to compel respondents to execute a deed of sale over the subject
properties.1âwphi1

A contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said
property exclusively to the latter upon his fulfillment of the conditions agreed upon, i.e., the full payment of the
purchase price50 and/or compliance with the other obligations stated in the contract to sell. Given its contingent nature,
the failure of the prospective buyer to make full payment51 and/or abide by his commitments stated in the contract to
sell prevents the obligation of the prospective seller to execute the corresponding deed of sale to effect the transfer of
ownership to the buyer from arising. As discussed in Sps. Serrano and Herrera v. Caguiat: 52
A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor's obligation to
transfer title is subordinated to the happening of a future and uncertain event, so that if the suspensive condition
does not take place, the parties would stand as if the conditional obligation had never existed. x x x. 53

203